Investors will likely keep downward pressure on the dollar next week as worries over the health of the economy linger despite a relatively strong labour market. A raft of economic reports, including minutes of the Federal Reserve's September 18 policy meeting on Tuesday.
Await investors but analysts are unconvinced the dollar would draw much mileage from any positive news after Friday's failure to sustain a non-farm payrolls rally. News that US employers added 110,000 jobs in September while August's jobs loss was revised to a solid gain suggested the economy would avoid recession and keep growing moderately, reducing the chances of another rate cut this month.
"The FOMC minutes will be the most interesting. I can't help but feel that those minutes will signal that the 50 basis points move was more an insurance move to forestall a slowing (in economic growth), rather than the beginning on an extended easing cycle," said Richard Franulovich, strategist at Westpac in New York. He was referring to the half percentage point reduction in the fed funds rate target, the first easing since 2002.
"Theoretically, it should support the dollar, but I am not so confident any more, given the way the dollar reacted to the strong US payrolls today," said Franulovich. Interest rate futures are showing a 52 percent chance of a quarter percentage point rate cut at the Fed's policy meeting at the end of October, down from 72 percent shortly before the release of the payroll report.
The dollar fell on Friday, cancelling earlier gains booked in the wake of a report showing US jobs in September had the highest growth since May, and traders blamed the move on aggressive euro buying by Asian and Middle East central banks.
"The data is going to be important in as far as it continues to discourage the market from looking for an end-of-October rate cut," said Marc Chandler, senior currency strategist at Brown Brothers Harriman in New York. "The euro has not peaked yet and the US jobs data is not enough to subdue the dollar bears."
Analysts predicted the euro would climb to $1.4190 before retesting Monday's $1.4281 record high next week. On the data side, analysts reckon the dollar could get some support from a trade balance report for September due on Thursday.
"There might be a little bit of dollar support from the trade balance, if in fact this dollar is finally coming in and helping exports and helping to reduce the trade deficit. This will be good for the trade balance and the US economy," said Ezechiel Copic, senior currency strategist at IDEAglobal, New York.
September's US retail sales due on Friday will also be watched to see if the slowdown in the housing market is starting to impact consumption, which constitutes a third of the US economy. But there are divergent views on whether consumption depends on housing or income. Speeches by several Fed officials, including Fed Chairman Ben Bernanke, will also be watched for clues on the interest rate and growth outlook.