Dollar gets respite in US manufacturing sector ahead of jobs report

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A photo illustration shows US $ 100 banknotes taken in Tokyo on August 2, 2011. REUTERS / Yuriko Nakao

The dollar held on to small gains from Wednesday night, coming back from an almost five-month low against its major peers, as a recovery in U.S. manufacturing held bets on for a faster normalization of Federal Reserve policy.

The dollar index, which measures the greenback against six rivals, hovered just below 90 after plunging to 89.662 on Tuesday and approaching the lowest since Jan. 7 at 89.533.

Likewise, the euro traded at $ 1.2222 after retreating from a multi-month high overnight, when it climbed to $ 1.22545.

Investors were also watching the trajectory of the recently bullish Chinese yuan. It was last at 6.3798 per dollar in offshore trading, after declining from the three-year high of 6.3526 reached on Monday as policymakers took steps to slow its advance, including increasing reserves. obligatory foreign exchange banks.

The British pound also remained lower at $ 1.4160 after hitting a three-year high of $ 1.4250 reached on Tuesday, while the Canadian dollar was at C $ 1.20590 per greenback after hitting a new six-year high of C $ 1,2007 overnight as oil rose.

“The direction of the dollar is definitely our focus,” said Shinichiro Kadota, senior currency strategist at Barclays in Tokyo.

“The market is divided in its view” on whether current inflationary pressures will be transient, as the Fed says, or persist long enough to force policymakers to cut stimulus and raise rates more. sooner than they have reported so far, Kadota said.

“Even if inflation continues to exceed, I think the Fed will continue to say it’s temporary, but the market won’t know for sure until the fall, so we’re a little stuck in that uncertainty.”

In the short term, the euro and the yuan will be critical in determining whether the dollar stays on track or rebounds, he said.

On Tuesday, the Institute for Supply Management (ISM) said its index of manufacturing activity in the United States rose in May as pent-up demand amid a reopening economy boosted orders. Read more

The dollar initially traded lower according to the report, in which ISM said the growth potential of the manufacturing sector continued to be hampered by worker absenteeism and temporary shutdowns due to shortages of parts and workforce.

These jobs gaps will be the focus of investor concerns on Friday with the release of non-farm payroll figures for May, after the much weaker-than-expected April reading pushed the dollar index down by 0.7% on May 7.

The index was broadly stable since Tuesday at 89.877, but remains far from Friday’s high of 90.447, when a measure of US inflation closely watched by the Fed recorded its biggest annual increase since 1992.

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