Forex – Dollar bounces back but gains seen limited

Dollar regains some ground but U.S. jobs data still expected to weigh – The dollar bounced back from steep losses posted against the other major currencies on Friday, helped by upbeat U.S. consument sentiment data and as markets were still digesting a disappointing U.S. employment report released earlier in the session.

The Institute of Supply Management said its manufacturing purchasing managers’ index rose to 58.8 in August from 56.3 the previous month, beating expectations for an uptick to 56.5. It was the highest reading since November 2014.

However, the University of Michigan reported that its consumer sentiment index hit 96.8 this month, down from an initial estimate of 111.0.

The reports came shortly after the U.S. Labor Department said the economy added 156,000 jobs in August, disappointing expectations for an increase of 179,000. The unemployment rate ticked up to 4.4% this month from 4.3% in July, confounding expectations for an unchanged reading.

The report also showed that average hourly earnings only rose 0.1% in August, compared to expectations for a 0.2% gain.

The weak employment data was likely to lower chances of another rate hike by the Federal Reserve in December.

EUR/USD was down 0.20% to 1.1885, off session highs of 1.1980, while GBP/USD rose 0.23% to trade at 1.2958, after hitting a three-week high of 1.2996 earlier in the day.

Data on Friday showed that UK manufacturing activity unexpectedly increased in August to a four-month high.

The yen and the Swiss franc retreated, with USD/JPY up 0.21% at 110.21 and with USD/CHF gaining 0.22% to 0.9611.

Demand for safe-haven assets was not completely wiped out however, as fresh diplomatic turmoil emerged between the U.S. and Russia.

The U.S. told Russia on Thursday to close its consulate in San Francisco and buildings in Washington and New York that house trade missions in retaliation for Moscow cutting the U.S. diplomatic presence in Russia.

Russian Foreign Minister Sergei Lavrov said that Moscow would respond harshly to U.S. measures designed to hurt it.

The Australian dollar held onto gains, with AUD/USD up 0.24% to 0.7965, while NZD/USD fell 0.14% to 0.7168, re-approaching the previous session’s nearly three-month low of 0.7132.

Meanwhile, USD/CAD was down 0.78% at a more than two-year low of 1.2390.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.10% at 92.69 by 10:45 a.m. ET (14:45 GMT), after hitting session lows of 92.06.

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