Dollar, euro steadies in London

03 Apr, 2014

The dollar and euro backed off after a surge higher against the yen on Wednesday, with the chances of a breakout of long-held ranges looking dependent on US jobs data due later in the session and on Friday. The major currency pairs have all been stuck in tight ranges since mid-February, bets for a run higher by the dollar having been thwarted by a combination of nerves over China and some worse than expected US data.
That has begun to turn around in the past couple of weeks and dealers are beginning to speculate non-farm payrolls numbers at the end of this week may have the potential to turn the dollar sharply higher. The heart of that argument is the assumption that, should the numbers begin to look more robust, US interest rates will be raised early next year while those in Europe and Japan will stay flat or be suppressed further.
"When we had that signal from (US Federal Reserve chair) Janet Yellen that rates could rise early next year, the line for many was that they wanted more confirmation before really betting on it," said a dealer with one large US bank in London. "It is just possible that the next three days could provide that, starting with the ADP numbers later today."
Figures from the payrolls processor, seen as a good guide to the official non-farm numbers on Friday, are expected to show the US private sector created another 195,000 jobs last month. After gaining as much as 0.3 percent against the yen in morning trade, both the euro and dollar had retreated to be almost unchanged at 143.03 yen and 103.70 yen respectively.
The euro was broadly flat against the dollar but is looking more robust than it did a week ago, when it was struck by hints that the Bundesbank's resistance to outright money-printing by the European Central Bank may be fading. Several ECB officials have since emphasised the temporary nature of current low inflation - 0.5 percent in March - and that has supported expectations the bank will do nothing when it ends its monthly policy meeting on Thursday.
"I wouldn't be surprised if the euro continues to do quite well," said Ian Stannard, a currency strategist with Morgan Stanley in London. "We see signs of more growth in France and Italy, which is encouraging overall and it seems like the ECB is not fazed by this sort of inflation. It will need a bigger shock to get them to move." The morning's biggest loser in Europe was the New Zealand dollar, down almost 1 percent on the day to $0.8564 after hitting a 2-1/2-year high of $0.8702 on Tuesday.
Dealers broadly put that move down to profit-taking on the back of a slightly more negative dairy auction after a run higher for the kiwi since the second half of last year. The yen, the currency most used by investors for funding carry trades which borrow in one unit to buy another slightly higher-yielding one, is also being weakened by anticipation that the Bank of Japan will have to ease policy further.
Oil prices trading just off 5-month lows and a survey that showed corporate expectations for inflation next year below the BoJ's 2 percent target all added to pressure on the bank when its US counterpart is reining in money-printing. "We're in an environment where the yen will come under some pressure against the dollar," said Morgan Stanley's Stannard. "We've had some fairly positive signs out of Asia on growth and that puts the yen on the back foot. China is a factor and if the US data comes in strong that will give the dollar a further boost."

Read Comments