The US dollar managed to regain some of the ground it lost during the previous sessions on optimism that the September US employment report will come in strong and show that the US economic recovery was on track. Good economic data out of the United States supports the argument of dollar bulls that the Federal Reserve will need to hike interest rates in coming months in contrast to the stimulative policies of the central banks of the Eurozone and of Japan.
Having held the 108 level at 108.01, dollar / yen rallied to around 108.90, which was significant but also some distance away from the 6-year high just above 110 that dollar / yen struck earlier in the week. As there has been some volatility recently in risk assets such as stocks, this has helped the safe-haven yen to stage some counter-rallies against the dollar although yen weakness has been a defining characteristic of the FX market for the past month and a half.
The European Central Bank President Mario Draghi did not present any new ideas or initiatives the previous day, which may have disappointed some who were betting on further euro declines. The ECB chief laid out the timetable for covered bond and asset-backed securities’ purchases and reiterated that further unconventional measures – a byword for Quantitative Easing – would take place if inflation keeps dropping. The euro was trading in the 1.26-1.27 range during the last 24 hours, with the latest quote at 1.2645.
Looking ahead to the remainder of the day, following some European services PMI numbers, the all-important nonfarm payrolls number and unemployment rate is due out early in the US session. Strong labor market data will ensure that the US dollar uptrend will continue, while dollar bulls may even use any pullback due to weak data as an opportunity to put on fresh long positions – such is the strength of the positive dollar sentiment right now. According to a Reuters poll, non-farm payrolls are expected to rebound to 215 thousand from last month’s weaker 142 thousand print, while the unemployment rate is expected to stay constant at 6.1%.