Dollar heads for worst week since December

by Jonathan Adams
European Central Bank

The dollar was bound for its worst week so far this year

The dollar was headed on Friday for its worst week since December, before a U.S. jobs report that investors expect to bolster the case for a Federal Reserve interest rate cut.

The prospects of the Fed’s reacting to an escalating China-U.S. trade row by cutting rates has dragged the dollar to a two-month low this week and helped the euro rise above $1.13.

On Friday, however, the euro relinquished all its gains from Thursday after a policy review by the European Central Bank that was less dovish than expected.

The U.S. non-farm payrolls data for May is expected to show a drop in hiring.

The NFP series, more than most, tends to hold up until it falls off the edge of a cliff, and that cliff is getting closer, said Societe Generale strategist Kit Juckes.

A slowdown in the U.S. labour market was evident in a worse-than-expected ADP National Employment Report released on Wednesday.

Others are more bullish about the dollar’s prospects.

An analyst at ACLS Global, Marshall Gittler believes the market’s assumption that the Fed is going to cut interest rates soon is premature. For now, the Fed can afford to remain patient.

He expects the dollar to recover over the medium term, although it may take some time before people realize that a rate cut is not imminent.

The ECB on Thursday ruled out raising rates in the next year and even opened the door to buying more bonds as a global trade war and Brexit drag the euro zone economy down. But the market been expecting a stronger hint of rate cut, and consequently the euro and euro zone bond yields rose, putting more pressure on the dollar.

The euro was down 0.05% to $1.1269 but still set for a weekly gain of 0.9%, its best weekly performance against the dollar since late September last year, when it rose nearly 1.1%.

Against a basket of six other currencies, the dollar was steady at 97.042, trading about 0.3% above Wednesday’s eight-week low of 96.749.

The index was on course for a 0.72% loss this week, its worst weekly performance since the week of March 15, when it gave up 0.73%.

This article is for information purposes only.
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