February 4, 2019
By Vatsal Srivastava
SINGAPORE (Reuters) – The dollar held near a one-week high against the yen on Monday, supported by a stronger-than-expected U.S. jobs and factory data, although gains are likely to be capped on caution about Federal Reserve policy and amid thinned holiday trade in Asia.
Data released on Friday showed that the U.S. economy created 304,000 jobs in January, the highest in 11 months, which beat street estimates.
The greenback was marginally higher versus the yen at 109.44, after posting its largest percentage gain in almost a month.
“The non-farm payroll was a strong number and is supporting the dollar. A dovish Fed had hit the dollar/yen but rising stocks and solid U.S. data have led to this bounce back in the dollar versus the yen,” said Nick Twidale, chief operating officer at Rakuten Securities.
The solid jobs report also allayed concerns of the slowdown in the U.S. economy, leading traders to trim expectations the Fed would need to cut interest rates to support the economy later this year.
The benchmark 10-year U.S. Treasury yield was 2.69 percent, rebounding from a four-week low of 2.619 percent set earlier last week. Rising U.S. yields are most likely to support the dollar in the near term.
In broader moves, currency markets held tight ranges in early Asian trade with euro trading flat at $1.1455.
China’s financial markets are closed all week for the Lunar New Year holiday. Other Asian markets are also closed for parts of the week, keeping wider market activity subdued.
The Aussie dollar was lower by 0.2 percent at $0.7234 while kiwi dollar was marginally lower at $0.6895. The Aussie dollar was hit after the release of weaker-than-expected Building Approvals data.
“Markets are now waiting for the next catalyst, which will most likely be news coming out of the ongoing U.S.-China trade negotiations,” added Twidale.
The dollar index, a gauge of its value versus six major peers was steady at 95.60.
Despite the strong labor market, the U.S. central bank is widely expected to keep rates steady this year thanks to heightened worries over global growth, especially in China. Growth in the euro area has also been weaker-than-expected with Europe’s main economic engines, France and Germany, slowing down.
Rising U.S. interest rates were the main driver of the greenback’s outperformance last year. However, most analysts do not see much upside in the dollar this year as U.S. borrowing costs are widely expected to remain steady.
Elsewhere, sterling was marginally lower at $1.3078 in early Asian trade. Traders expect the British pound to remain volatile as Brexit uncertainty remains high. The Bank of England is scheduled to meet later this week and widely expected to keep interest rates steady.
(Reporting by Vatsal Srivastava; Editing by Sam Holmes)