Dollar above support levels

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SINGAPORE- The US dollar was wavering above major support levels on Thursday, as traders awaited a batch of US economic data that could set the tone at central bank meetings later this month.

Investors have bet on the dollar falling as the world recovers from the COVID-19 pandemic, but they have lately grown nervous over whether a surprisingly strong US economic rebound poses a threat to a key assumption that interest rates stay low.

The mood has kept speculators from adding much to short positions in recent weeks. That has put the brakes on what had a month ago seemed like a relentless downtrend and has pushed trend-following traders into a wait-and-see mode.

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Against the euro the dollar traded at $1.2209 after unwinding a small Wednesday rally. The greenback lost 1.7 percent on the euro in May, but did not fall past strong support at $1.2266. It was steady at 109.64 yen.

In Asia, startling gains in the Chinese yuan this week had also sparked speculation about shifts in Chinese policymakers’ stance on the currency, although it eased slightly to 6.3807 in early offshore trade on Thursday.

The dollar index, which measures the greenback against a basket of six major currencies, also held at 89.919 where it seems to have found strong support in recent weeks.

US private payrolls figures due later on Thursday are the latest numbers to offer clues on the state of the economy and a possible read on broader non-farm payrolls data due on Friday. Appearances by a handful of Federal Reserve officials will also be closely watched for hints of sensitivity to the early strength of the rebound ahead of their next meeting in mid June.

“The major pairs (are) still stuck within ranges,” said strategists at Singapore’s OCBC Bank in a note. They added, however, that yield differentials seem to be moving in the dollar’s favor and that policymakers’ tone is subtly shifting.

Remarks from Fed Governor Lael Brainard this week noting risks to both sides of the Fed’s goals offered “another signal that the Fed is slowly moving away from its excessively dovish stance,” said the bank’s strategists, Terence Wu and Frances Cheung.

“(We) retain the view that Fed expectations should be gradually built in from here, barring any key data misses this week.”

The Fed’s overnight announcement of a move to unwind corporate bond holdings bought through an emergency facility last year offers another sign of pandemic measures coming to an end. – Reuters

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