Dollar Edges Higher With Friday’s Payrolls Data in Focus

Moves in the FX market were likely to remain largely muted for the rest of the week as investors await the update on the U.S. labor market that could help provide clues to whether the Fed will begin tapering its asset purchases before year’s end, analysts said.

“Nonfarm payrolls is always a market mover,” said John Doyle, vice president of dealing and trading at FX payments firm Tempus Inc.

“An underwhelming print will give the Fed dovish cover, but a blowout reading, paired with rising inflation made worse by the energy crisis will put more pressure on the Fed to begin tapering and help the greenback,” said Doyle.

Friday’s non-farm payrolls data is expected to show continued improvement in the labor market, with a forecast for 488,000 jobs to have been added in September, a Reuters poll showed.

The U.S. dollar index, which measures the currency against six rivals, was 0.2% higher at 93.981, moving back towards Thursday’s peak of 94.504, its highest since late September 2020.

“Generally, the U.S. dollar is trying to find new ranges after a strong rally at the end of September. In my opinion, the greenback’s rally was overdone and we have seen that unwind over the past three to four days,” Doyle said.

Others, however, expected the greenback to resume its upward move.

With the Fed likely to soon begin scaling back asset purchases, “conditions are ripe for continued USD strength once the current, likely consolidative, correction in the dollar passes,” Shaun Osborne, chief currency strategist at Scotiabank, said in a note.

Worries about the debt ceiling are beginning to rattle investors as the deadline nears for Congress to raise the U.S. borrowing limit to avoid a historic default on U.S. debt.

The risk-sensitive Australian dollar was little changed on the day after the Reserve Bank of Australia reiterated that it does not expect to raise interest rates until 2024.

Sterling rose to a near three-week high against the euro, recovering from a sharp sell-off last week as traders turn their attention back to the prospect of interest rate rises in Britain.

Cryptocurrencies rallied, a day after data from digital asset manager CoinShares showed cryptocurrency investment products and funds recorded inflows for a seventh straight week, as institutional investors warmed to more supportive statements from regulators.

Bitcoin, the world’s biggest cryptocurrency by market value, hit $50,000 for the first time since Sept. 7.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Saqib Iqbal AhmedEditing by Marguerita Choy and Cynthia Osterman)