The dollar traded sideways in the Asian forex market on Friday local time, following the publication of U.S. private payroll data.
The DXY, an index that measures the U.S. currency’s values against major peers, hovered around 103.04 after trading at 103.10 in the previous session. Analysts explain that the payroll data published on Thursday, which showed 497,000 new jobs in June, has increased expectations of further rate hikes by the Federal Reserve.
“This strong data today has a lot more of a ‘good news is bad news’ type feel to it,” Brian Daingerfield, head of G10 FX strategy at trading firm NatWest Markets, said.
Commonwealth Bank of Australia currency strategist Carol Kong also said the “strong” job report heightened expectations for a September rate hike that “wasn’t considered possible” before. Kong predicted the Federal Open Market Committee would hike the benchmark rate by 25 basis points in September.
“Take it together with how equity markets have responded, that gives a clear picture of the dollar today. Call it a risk-off style move, where the Fed is going to be tightening more and that has negative repercussions for risk.”
Brian Daingerfield, Head of G10 FX Strategy at NatWest Markets
Meanwhile, Fed fund futures now predict a 92.4 percent chance that central bank policymakers will increase the key rate by a quarter of a percentage point later this month.
The euro gained 0.02 percent against the dollar to $1.0894, while sterling rose by 0.06 percent to $1.2748. On Thursday, sterling advanced to a two-week high of $1.2780. Analysts say the currency strengthens as the market expects Britain’s key rate to peak at 6.5 percent by early next year, against earlier estimates of 6.25 percent.
Versus the greenback, the New Zealand dollar increased by 0.24 percent to $0.61725, recovering some losses from the session before. The Australian dollar strengthened by 0.23 percent to $0.6641. The Aussie remains on track for a third consecutive weekly loss. Analysts say weak Chinese economic data and falling risk appetite among investors contribute to its decline.
The Japanese yen edged 0.2 percent to trade at 143.72 per dollar, on the pace of posting a weekly gain. The currency had previously posted three straight weekly losses. Recent data show that the country’s base salary rose the fastest in over two decades in May. According to analysts, it pressures the Bank of Japan to abandon its ultra-low interest rate policy.
Updates on yields, commodity prices
Expectations of further rate hikes by the U.S. central bank also keep benchmark Treasury yields elevated. The two-year Treasury yield, which signals short-term interest expectations, stayed around five percent. The yield hit a 16-year high of 5.12 percent on Thursday.
Meanwhile, the yield of 10-year notes stood at 4.0336 percent after hitting a four-month peak of 4.0830 percent the day before. The yield curve between the two benchmark notes was inverted at 96.50 basis points. The inverted curve indicates investors expect the U.S. to fall into a recession in the coming months.
This week, oil is on track to post its second consecutive weekly gain. Analysts say strong demands have led to a larger-than-expected decline in the U.S. oil stockpiles, offsetting fears of oversupply. Brent crude futures rose 0.4 percent to trade at $76.83 in early Asian trading on Friday local time. At the same time, West Texas Intermediate crude futures traded 0.4 percent higher to $72.11.
The high U.S. Treasury yields put pressure on gold prices. Spot gold traded flat on Friday at $1,910.20 an ounce. The commodity is on track to post a 0.5 percent loss this week.