Dollar Holds Gains Ahead of US Payrolls, Sterling Edges Higher
The dollar held onto its gains ahead of the US September payrolls release on Friday. The Pound and euro firmed slightly, with Sterling rising 0.08% to $1.3211 and the euro gaining 0.04% to $1.1248.
Chris Turner, global head of markets at ING, said that with energy prices remaining high and US activity resilient, the dollar can largely hold gains or extend them against the euro. He noted that pricing for a Fed rate hike in October fell to 28% from 70% last week after Fed Vice Chair Philip Jefferson echoed John Williams' comments on not rushing into back-to-back hikes.
ING sees the dollar index heading towards 102.85, which would be a new high for the year. Short-dated US rates posted their first significant fall since late August, and markets are settling on a December hike. The September non-farm payrolls are expected to show a gain of 85,000-90,000, with unemployment at 4.1% and earnings up 3.1% year-on-year.
The euro is the weaker side of the trade, with EUR/USD breaking new lows for the year on Thursday. Turner said that French debt remains vulnerable over the coming months due to little prospect of fiscal consolidation anytime soon, which dramatically questioned whether the ECB could deliver another 75 basis points of tightening.