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FOREX-Dollar holds gains as traders look to U.S. data for policy cues

Published 05/03/2021, 09:03 AM
Updated 05/03/2021, 09:10 AM
© Reuters.

© Reuters.

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Tom Westbrook
SINGAPORE, May 3 (Reuters) - The dollar clung to a recent
bounce on Monday as investors made a cautious start to a week
crammed with central bank meetings and big-ticket U.S. economic
data, looking for clues on the outlook for global inflation and
for policymakers' response.
Asia trade was thinned by public holidays in Japan and China
that also kept a lid on volatility, leaving the greenback where
it settled after a Friday leap. It steadied at $1.2029 per euro
EUR=EBS and bought 109.28 yen JPY=EBS .
The dollar index =USD , measured against six major
currencies, held at 91.242. The index dropped 2% through April
as a positive view of global recovery prospects lifted
trade-exposed currencies at the dollar's expense.
"We expect the dollar to trend lower because of the
improving global economic outlook," said Commonwealth Bank of
Australia analyst Kim Mundy in an emailed note, with U.S. import
demand also likely to support exporters' currencies.
"Nevertheless," she said "the risk of short bouts of dollar
strength remain if solid data push U.S. Treasury yields
materially higher."
The Australian and New Zealand dollars both rose though
April, but dropped on Friday when strong U.S. consumption
figures boosted the U.S. currency.
The Aussie AUD=D3 rose 0.1% $0.7724 on Monday to trade
just above its 20-day moving average at $0.7714, while the kiwi
NZD=D3 edged 0.2% higher to $0.7174, also just above its
20-day moving average. Sterling GBP= steadied at $1.3825.

U.S. manufacturing surveys are due on Wednesday followed by
crucial April labour market numbers on Friday.
Forecasts are that 978,000 jobs were created in the month.
However analysts say the market response to a surprise either
way may be hard to guess, as investors have begun to fret that
strong data may prompt central bankers to taper their support.
"The risk is for a hotter number," said Chris Weston, head
of research at broker Pepperstone in Melbourne.
"But will good numbers lead to a broad risk-off vibe, as
traders' price in higher rate expectations, and the dollar
rallies," he added. "I suspect we're getting to a point where
really good data could start to become bad for markets."
Dallas Fed President Robert Kaplan caused a stir on Friday
by calling for beginning the conversation about tapering,
although Federal Reserve Chair Jerome Powell has been clear that
he is likely to be patient.
Powell is due to speak later on Monday and will be followed
by a raft of Fed officials this week. Central bank policy
meetings are also scheduled this week in Australia, Britain and
Norway.
In Australia, no policy changes are expected on Tuesday
although traders will look to a speech by deputy Reserve Bank of
Australia governor Guy Debelle on Thursday for insight into the
bank's thinking around its bond purchases outlook.
Asset purchases are likewise the focus when the Bank of
England meets on Thursday, as well as perhaps an upgrade of its
economic outlook, while Norges Bank - which projects hiking
rates this year - is expected to stick with its hawkish tone.

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