Dollar Steadies After U.S. Jobs Report, Focus Shifts To ECB Meeting

The dollar steadied in holiday-thinned trade on Monday after U.S. jobs data showed job growth slowed further in August, while traders shifted their focus to the European Central Bank’s meeting on Thursday.

The U.S. Labor Department report on Friday showed that U.S. employment growth slowed and permanent job losses increased as government funding started running out, raising doubts on the sustainability of the economy’s recovery. Still, the jobless rate fell to 8.4% from 10.2% in July.

In the immediate aftermath, the greenback rallied to its highest in a week at 93.242 against a basket of six major currencies on safe-haven buying, but later retraced its gains as U.S. stock indexes recovered.

The dollar index was little changed on Monday at 92.846. Foreign exchange trading was likely to be subdued as U.S. financial markets are closed for the Labor Day holiday.

“The jobs data which showed a decline in the unemployment rate, and a rise in U.S. Treasury yields, are supporting the dollar today,” said Masafumi Yamamito, chief currency strategist at Mizuho Securities.

“However, what’s weighing on the currency is a huge drop in U.S. stocks (last week).”

The S&P 500 fell 2.3% last week after five consecutive weeks of gains.

Broader sentiment on the dollar remains weak after Federal Reserve Chair Jerome Powell reiterated on Friday that the central bank plans to keep U.S. rates lower for longer.

“We think that the economy’s going to need low interest rates, which support economic activity, for an extended period of time … it will be measured in years,” Powell said.

The focus this week will be on European Central Bank’s policy decision on Thursday. Most analysts don’t expect a change in policy stance but are focusing on the message the ECB will deliver on its inflation forecasts.

The ECB meeting comes after the euro marked a two-year high at the beginning of the month.

The common currency, however, quickly retraced after executive board member Philip Lane said last week that the appreciation of the euro “does matter” for monetary policy, highlighting the potential for further easing from the bank.

The euro stood at $1.18395 on Monday.

The British pound fell 0.2% to $1.3253, retreating from its highest level in almost a year on fears over a no-deal Brexit.

Amid an EU-UK trade negotiations impasse, the chances of a no-deal Brexit have risen sharply as negotiations have been threatened by Britain’s insistence that it have full autonomy over its state aid plans.

The European Union is demanding a potential veto on Britain’s post-Brexit laws and regulations, the British daily The Times reported on Saturday, citing senior government officials.

Against the yen, the dollar traded at 106.37.

On the data front, the United States has producer prices on Wednesday and consumer price data on Friday, while China’s consumer prices will be released on Wednesday.

The yuan was little changed in offshore trade on Monday morning, and last traded at 6.8345 per dollar.

Among the Antipodean currencies, the Australian dollar edged higher to $0.72895, while the New Zealand dollar last traded at $0.6711.

Elsewhere, the Canadian dollar changed hands at C$1.3076. The Bank of Canada is also due to make an interest rate announcement on Wednesday.

– CNBC