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Singapore - A gauge of the dollar rose, recovering some of what was its biggest loss since February on Friday, when weaker-than-forecast payrolls data doused speculation the Federal Reserve will raise interest rates in the coming months.
The Bloomberg Dollar Spot Index climbed after last week’s 1.6% decline, which was triggered by a US Labour Department report showing employers in May added the least number of workers in almost six years. The gauge had rallied during the previous four weeks, and traders had boosted bullish bets on the dollar to the highest since March. Fed Chair Janet Yellen is due to speak on Monday at an event in Philadelphia.
“The dollar has further weakness to come,” said Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London. “Yellen’s speech today will be very important.
We think the message from her will be the Fed is worried about the data and, being a central bank that is data-dependent, the backdrop of the US economy is not strong enough to deliver rate hikes any time soon.”
Sneyd said economists at BNP Paribas are forecasting no Fed interest rate increases this year.
Yen declines
Bloomberg’s dollar Index, which tracks the currency against 10 major peers, gained 0.2% as of 10:20 a.m. in London, after slumping 1.5% on Friday, the most since February 3. The dollar appreciated 0.1% to $1.1354 per euro, after weakening 1.9% in the previous session. It rallied 0.6% to ¥107.15, halting a four-day slide.
BNP’s Sneyd forecasts the dollar to weaken toward $1.16 per euro by the end of the month.
Traders see a 4% chance the Fed will raise interest rates by its June 14 to 15 meeting, down from 30% odds a week ago, futures contracts indicate.
Cold water
The Bloomberg gauge for the US currency rose 3.7% last month, paring its declines this year, after policy makers including Yellen said higher rates in the coming months look appropriate. The employment report throws cold water on prospects for dollar strength based on the expectation that the Fed would tighten policy while central banks in Europe and Japan add to monetary stimulus.
“It’s not just about the odds of a hike next week being blown out of the water, it also looks like it’s increasingly become quite a challenge for the Fed to decide whether they can even hike in the third quarter or not,” said Vishnu Varathan, an economist at Mizuho Bank in Singapore.
“There is a pervasive weakness that’s beginning to take hold, so the Fed would want to wait for a few months.”
Nonfarm payrolls climbed 38 000 in May, the smallest increase in almost six years, and less than the most pessimistic forecast in a Bloomberg survey. The jobless rate dropped to 4.7%, the lowest since November 2007.
Hedge funds and other large speculators increased bullish bets on the dollar by 16 719 contracts in the week ending May 31 to a net long position of 84 149, the highest since the period ended March 22, according to data from the Commodity Futures Trading Commission. Strategists still forecast a stronger dollar for 2016.
The US currency is projected to strengthen to $1.10 per euro and 115 yen by the end of the year, according to surveys of analysts by Bloomberg.
