Dollar Consolidates Near Two-Week High; Bank of England to Meet

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Dollar Consolidates Near Two-Week High; Bank of England to Meet
Credit: © Reuters.

By Peter Nurse - The dollar edged lower in early European trade Thursday, consolidating near a two-week high, ahead of a key U.S. jobs report, while traders also wait for a Bank of England policy decision.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 91.213, after rising as high as 91.436 in the previous session for the first time since April 19. 

EUR/USD traded 0.1% higher at 1.2014, near its key 1.20 pivot, USD/JPY rose 0.1% to 109.25, consolidating after rallying as high as 109.69 on Monday, a level not seen since April 13, while the risk-sensitive AUD/USD fell 0.1% to 0.7742, slipping after China halted an economic dialogue in the latest spat between the two trading partners. 

The greenback has edged higher over the past week, helped by U.S. economic data that has largely pointed to a rapid recovery from the pandemic, increasing the pressure on the Federal Reserve to move sooner than policymakers have so far suggested.

Data from the ADP Research Institute on Wednesday showed U.S. private employers in April added the most jobs in seven months. This has raised expectations ahead of the weekly initial claims data later Thursday, but more importantly the widely-watched monthly U.S. jobs report on Friday, with several forecasters predicting a one-million-plus increase in nonfarm payrolls.

So far, Fed Chair Jerome Powell has argued the U.S. labor market is far short of where it needs to be to start talking of tapering asset purchases. And Boston Fed President Eric Rosengren, widely seen as one of the Fed's more hawkish members, again played down the current spike in inflation in an interview on Wednesday,. telling Bloomberg that it is unlikely to last into 2022.

“Some good data in the U.S. may cast further doubt on the ability of the Fed to stick to its ultra-dovish stance and give some support to the dollar, especially against the low-yielders,” said analysts at ING, in a note.

Elsewhere, GBP/USD rose 0.1% to 1.3910 with the Bank of England scheduled to meet later Thursday, and most economists expecting the central bank’s Monetary Policy Committee to keep rates and bond-buying targets unchanged, for now.

However, the central bank is also set to significantly upgrade its growth outlook as the country’s successful vaccination drive leads to a reasonably rapid reopening of the economy. This could help the pound as expectations grow that the bank’s next move will be to tighten monetary policy rather than provide fresh stimulus to the economy as the pandemic eases.

Also, USD/TRY rose 0.2% to 8.3252 ahead of the latest meeting of Turkey’s central bank, which is expected to leave its benchmark interest rate unchanged at 19% for a second meeting later Thursday.

Turkish inflation accelerated for a seventh month in April, spurred on by a weak lira and rising global energy prices, leaving little room for new central bank Governor Sahap Kavcioglu to maneuver given President Recep Tayyip Erdogan seeks lower borrowing costs.

Elsewhere, the Brazilian real is testing a four-month high after the country's central bank raised its key rate by 75 basis points to rein in inflation.


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