Dollar sustains momentum, rise slightly as traders await US jobs numbers

The dollar rose slightly on Friday, sustaining some momentum after jumping in the previous session following a raft of central bank decisions in Europe.

Trading was relatively subdued as markets waited for the latest U.S. employment data later in the day which may shift U.S. Federal Reserve policy.

The dollar picked up against the euro, with the latter down 0.1% to $1.09 in early European trading. The euro remained well above the 20-year low of $0.953 hit in September, however.

The Federal Open Market Committee on Wednesday raised interest rates by 25 basis points to a range of 4.5% to 4.75%, a softer approach than the previous increase of 50 bps.

The slowdown in the pace and comments from the central bank helped send the dollar tumbling as traders hoped rate hikes might soon end altogether.

It then rallied sharply on Thursday when the European Central Bank raised rates by 50 bps to 2.5%, but suggested that it could be finished after another increase in March, causing the euro to tumble.

"Essentially we have retraced everything before the (Fed)meeting," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

He said relatively weak earnings reports by tech giants Alphabet, Apple and Amazon were causing "a bit of a risk-off mood" in markets that was likely boosting the dollar on Friday.

The dollar index, which tracks the currency against major peers, was up 0.1% to 101.89.

Graphic: Euro vs. dollar https://fingfx.thomsonreuters.com/gfx/mkt/egpbyaooavq/Screenshot%202023-02-03%20083709.png

 

Japan's yen was slightly higher against the dollar, however, at 128.66 per dollar.

The big event for markets on Friday is the release of U.S. employment - or nonfarm payroll - numbers at 8.30 a.m. ET (1330 GMT).

Analysts polled by Reuters expect the U.S. economy to have added 185,000 jobs in January, a strong showing but down from 223,000 in December. Wages data is also due.

The pound was down 0.18% on Friday to $1.22, after tumbling 1.2% on Thursday when the Bank of England raised interest rates but stressed that inflation was showing signs of relenting.

The Australian dollar was 0.35% lower at $0.705. Meanwhile, the U.S. dollar was up 0.35% against its Canadian counterpart at C$1.336.

Tan said he thinks the U.S. dollar should remain under pressure in the coming weeks, given that the Fed is the central bank closest to pausing interest rate hikes.

"I think that the path of least resistance in the next quarter... is still for dollar weakness, unless we get a big risk-off fright," he said.

 

(Reporting by Harry Robertson; Additional reporting by Rae Wee; Editing by Lincoln Feast, Simon Cameron-Moore and Emelia Sithole-Matarise)