Dollar pressured before payrolls data, poised for worst weekly performance for 2019

June 7, 2019

By Daniel Leussink

TOKYO (Reuters) – The dollar was under pressure on Friday and was poised for its worst weekly performance for the year, as investors waited on a key U.S. jobs report that is expected to back expectations for a near-term Federal Reserve rate cut to support a slowing economy.

Not helping the U.S. currency was the European Central Bank’s policy review on Thursday where it refrained from hinting at an interest rate cut and instead pushed back the timing of its first rake hike since the 2008 financial crisis.

Market participants’ immediate focus was on the U.S. non-farm payrolls data for May due later on Friday, and early signs weren’t good with hiring expected to have dropped in a boost to rate doves and dollar bears.

A slowdown in the U.S. labor market was evident in a worse-than-expected ADP National Employment Report released on Wednesday, which showed private U.S. employers added 27,000 jobs in May, the smallest monthly gain in more than nine years.

“The ADP report was unexpected so it’s hard to know what to expect” from the U.S. jobs data, said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

The dollar has been hit in recent weeks by the rising expectations for a U.S. rate cut before year-end, as an escalating China-U.S. trade row hurts business confidence and growth. Recent comments from Fed officials have also pointed to an easing in coming months.

Markets have priced in slightly more than a 50% probability rates will be cut 25 basis points by the end of July and one more cut would follow by the end of the year, according to the CME Group’s FedWatch Tool.

Against a basket of six peers, the dollar was a shade lower at 97.029, trading about 0.3% above an eight-week low of 96.749 brushed on Wednesday.

The index was on course for a 0.75% loss this week, its worst weekly performance since early December last year.

The euro jumped half a percent during the previous session as markets had positioned on a more dovish signal from the ECB and an acknowledgement of weak economic growth in the bloc.

The single currency was steady at $1.1275 and was set for a weekly gain of nearly 1%, its best weekly performance against the dollar since late September last year, when it rose nearly 1.1%.

“I think the ECB policy was quite dovish as the forward guidance was prolonged, but the market was hoping the bank would be even more dovish,” said Daiwa’s Ishizuki.

Elsewhere in the currency market, the dollar was 0.05% higher at 108.455 yen.

Market participants were also keeping tabs on developments around Washington’s trade negotiations with both China and Mexico.

U.S. President Donald Trump said on Thursday he would decide whether to carry out his threat to hit China with tariffs on at least $300 billion in the country’s goods after a G20 meeting late this month.

(Editing by Shri Navaratnam)

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