Dollar little changed ahead of US payrolls; short-term trend tilted to upside

NEW YORK: The dollar was little changed to slightly higher on Thursday, with most currencies trading within narrow ranges, as investors looked to Friday's US nonfarm payrolls report for clues on whether the Federal Reserve will start to reduce monetary stimulus sooner rather than later.

The US dollar index, which measures the greenback against six major counterparts, rose to a three-month high of 92.547 earlier in the session. It last traded modestly higher at 92.381.

The index in June posted its best monthly performance since November 2016, driven in part by the Federal Open Market Committee's (FOMC) unexpected hawkish shift at a meeting during the month. Fed forecasts released after the June FOMC meeting pencilled in two interest rate hikes by the end of 2023.

Against the yen, the dollar hit a 15-month high of 111.625 yen, and was last up 0.4% at 111.525.

Increased vaccinations that have led to a more robust economic activity have sheltered the US recovery from the pandemic, prompting expectations that the Fed could start to exit from its ultra-easy policy. That has provided a lift for the dollar.

"The dollar got a justified boost in June based on physical activity taking place across the country because of inoculations," said Juan Perez, FX strategist and trader at Tempus Inc in Washington.

"The rest of the world simply is not looking that safe, that prepared to move forward. But now comes the volatility as we gauge whether all the loose monetary policy out there can continue translating into economic growth beyond recovery."

Traders are looking to Friday's US payrolls report for confirmation of the market's bullish outlook. Economists polled by Reuters expect a gain of 700,000 jobs last month, compared with 559,000 in May, and an unemployment rate of 5.7% versus 5.8% in the previous month.

The greenback, meanwhile, extended gains earlier on Thursday after data showed US initial jobless claims fell more than expected last week, while layoffs plunged to a 21-year low in June.

The dollar though slipped a bit after a report showing US manufacturing activity grew at just a moderate pace in June, while employment in the sector contracted for the first time in seven months, likely because of rampant shortages of raw materials and labor.

In midmorning trading, the euro was flat to higher at $1.1863 after earlier dipping as low as $1.1837 for the first time since April 6. The euro recovered after data which showed euro zone purchasing manager's indexes (PMIs) were higher than expected.

The Aussie dollar, seen as a proxy for risk appetite, slid 0.2% to $0.7488, after earlier hitting its lowest since Dec. 21, as Australia's major centers of Sydney, Brisbane, Perth and Darwin are all under lockdown.

The Reserve Bank of Australia will meet on Tuesday to decide on policy, and officials have already flagged it will announce its decisions on its three-year yield target as well as its broader quantitative easing programme, which is set to end in September.