Sturdy dollar racks up third week of gains before jobs data

By Saikat Chatterjee

LONDON (Reuters) - The dollar consolidated above the 92.50 line on Friday against a basket of its rivals, rounding off a third week of solid gains as widening interest rate differentials supported the greenback.

With the U.S. Federal Reserve staying the course in looking to raise interest rates at least three more times this year, while expectations of policy tightening from the European Central Bank and the Bank of England recede further, currency markets bet the relative interest rate advantage will continue to push the dollar higher.

“The story in the last few days has been the disappointment over the ECB and the UK to start raising interest rates in the wake of the Fed and unless we see data picking up meaningfully, the dollar will outperform in the coming weeks,” said Gavin Friend, senior markets strategist at NAB in London.

After a policy meeting this week, the Fed expressed its confidence on the outlook of the economy and appeared on track to raise interest rates by another 75 basis points this year to a total of 1 percentage point in 2018.

Comparatively, the European Central Bank is not expected to raise interest rates well into the second half of 2019 while bets on a rate hike from the Bank of England have withered away in the last two weeks after a recent run of tepid data.

Against a basket of its peers, the dollar rose 0.1 percent at 92.51. It hit a 2018 high of 92.83 on Wednesday and has gained around 4 percent in the last two weeks.

Graphic: World FX rates in 2018

But some such as ING say the dollar’s momentum is also a reflection of a large structural short bet against the greenback built up by speculators in recent months. While short dollar bets have receded somewhat, they are still holding near a record $28 billion in late-April. For a related story, see

Friday’s employment report for April will be evaluated for further indications of the strength of the U.S. labour market and inflation pressures.

“Any slowdown in the pace of wage growth should re-energise dollar bears,” Christopher Wong, senior FX strategist for Maybank in Singapore, said in a note.

Key support for the dollar index lies at its 200-day moving average, which is now near 92, Wong added.

Nonfarm payrolls probably increased by 192,000 jobs last month, according to a Reuters survey of economists. Payrolls rose by 103,000 positions in March, the smallest gain in six months, which economists dismissed as payback after unseasonably mild weather boosted hiring in February.

The euro edged lower to $1.1970, staying above a near four-month low of $1.1938 set on Wednesday.

The common currency had risen 0.3 percent on Thursday, shrugging off data showing an unexpected slowdown in euro zone inflation, as the dollar’s recent rally paused.

The Australian dollar bounced modestly as speculators took profits on long U.S. dollar positions. The Aussie rose 0.2 percent to $0.7549 AUD=D3, pulling away from an 11-month low near $0.7472 set earlier in the week.

Reporting by Saikat Chatterjee; Additional reporting by Masayuki Kitano in SINGAPORE; Editing by Peter Graff