Dollar Struggles for Momentum as Markets Wait for Inflation Data

The dollar stabilised on Monday after dropping on Friday following lower-than-expected U.S. jobs data, and currency markets broadly lacked momentum as investors looked ahead to key inflation data later this week.

Friday’s jobs data was seen as a relief for markets, showing a pick-up in job growth was not strong enough to raise expectations for the U.S. Federal Reserve to tighten its monetary policy any sooner, and this hurt the dollar.

There was little movement in major currency pairs during the early European session on Monday. World shares were trading near record highs.

At 1125 GMT, the dollar index was flat on the day at 90.141. The euro was down 0.1% against the dollar, at $1.2159.

The Australian dollar, which is seen as a proxy for risk appetite, was up 0.2% versus the U.S. dollar at 0.77535 .

“After Friday, we’re looking at a foreign exchange market that’s still got no reason for the Fed to change its tune, so we’ve still got accommodative monetary policy in the United States,” said Kit Juckes, head of FX strategy at Societe Generale. “But on balance we’re getting more optimistic about the global economic and health outlooks.”

Market participants were focused on U.S. inflation data and the European Central Bank meeting, both on Thursday.

Dovish rhetoric from ECB policymakers suggests the bank is in no hurry to slow the pace of buying under the 1.85 trillion euro ($2.24 trillion) Pandemic Emergency Purchase Programme (PEPP).

But U.S. Federal Reserve policymakers have begun inching toward a discussion about winding that help back.

“A divergence has opened up recently between the ECB and Fed who have signalled a willingness to discuss QE tapering at upcoming meetings,” MUFG currency analyst Lee Hardman wrote in a note to clients. “It will help dampen upward momentum for EUR/USD. However, the developments are not sufficient to alter our bullish outlook the pair beyond the near-term.”

Speculators decreased their net short dollar positions in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday.

China’s yuan hovered around the key 6.40 level, with the offshore yuan changing hands at 6.3960.

China’s export growth missed forecasts and imports grew at their fastest pace in 10 years in May, fuelled by surging demand for raw materials. read more

“In general, the trade sector continues the strong performance indicating that the manufacturing sector remains the leading role in the post-pandemic recovery,” wrote Commerzbank senior economist Hao Zhou in a note.

“However, the trade data might have little FX market impact, as the authorities vow to keep a stable currency for the time being.”

Elsewhere, the United States, Britain and other rich nations reached a deal on Saturday to squeeze more money out of multinational companies such as Amazon and Google and reduce their incentive to shift profits to low-tax offshore havens.

Investors were wary of how tech stocks would react, in terms of currency markets, but ING strategists wrote in a note to clients that the plans for a minimum global corporate tax rate of at least 15% could result in a repatriation of global capital over a longer term which would be positive for the dollar.

“Our thoughts here are that the removal (of) tax havens could have implications for the hundreds of billions of dollars of cash parked overseas by US multi-nationals – reducing the incentives to keep cash overseas,” they said.

In cryptocurrencies, bitcoin was up 2% around $36,535 , while ether was up 4.2% at $2,825 . Both were trading within the month’s relatively narrow ranges.