Dollar gains on rate hike bets ahead of jobs data By Reuters
2021-12-03 17:35:19
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Dollar gains on rate hike bets ahead of jobs data © Reuters. FILE PHOTO: An employee of the Korea Exchange Bank counts one hundred U.S. dollar notes during a photo opportunity at the bank's headquarters in Seoul April 28, 2010. REUTERS/Jo Yong-Hak/File Photo

By Tommy Wilkes

LONDON (Reuters) - The dollar gained on Friday against most major currencies as traders positioned ahead of key U.S. jobs data that could clear the path for an earlier rate hike by the Federal Reserve.

Fed officials speaking on Thursday joined Chair Jerome Powell in striking a hawkish stance, with San Francisco Fed President Mary Daly saying it may be time to "start crafting a plan" to raise rates to combat inflation, and Richmond Fed President Thomas Barkin throwing his support behind "normalising policy."

At the same time, the continued spread of the Omicron coronavirus variant globally has buoyed safe-havens like the dollar and yen and put pressure on riskier currencies over the past week.

The dollar index, which measures the greenback against six major peers, gained 0.2% to 96.283, setting it up for a weekly advance. That would be a sixth weekly gain, the longest stretch since January 2015.

"If you strip out the noise in the market at the moment, which is driven very much by uncertainties around Omicron, the dollar is in a fairly bullish cycle," said Kyle Rodda, a market analyst at IG in Melbourne.

"That's on the basis that clearly U.S. economic outperformance, especially within the developed world, is fairly entrenched for the time being, and we're really pricing in that the Fed is going to increase the pace of the tapering programme in December and set up rate hikes well before the middle of next year."

Money markets see high odds of the Fed raising the target rate by a quarter point at its June meeting.

Powell reiterated in testimony to Congress on Wednesday that he and fellow policymakers will consider swifter action at their Dec. 14-15 meeting.

Economists in a Reuters poll estimate the United States created 530,000 new jobs last month, continuing a run of strong data.

"Whatever the outcome in today’s report is, the Fed have been left surprised and will likely push on with confirming a faster taper," said MUFG analysts.

That would likely "result in USD crosses reverting back to pre-Omicron levels close to 97.00 on DXY", while the "EUR/USD is likely to grind lower toward the $1.1000 level," they said.

The dollar rose 0.2% to 113.40 versus the Japanese yen.

The euro dippped 0.1% to $1.1291, consolidating after its drop to an almost 17-month low at $1.1186 last week.

The Aussie dropped 0.5% to a new 13-month low of $0.7055, falling for a fourth consecutive session.

Both the European Central Bank and Reserve Bank of Australia, which decides policy on Tuesday, have stuck to dovish stances, pushing back against market bets that policymakers will be forced to bow to inflationary pressures.

Sterling slipped 0.2% to $1.3271.

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