Dollar Edges Lower; April Payrolls Data in Focus

By Peter Nurse

Investing.com - The dollar edged lower in early European trade Friday, under modest pressure ahead of the monthly U.S. employment report which is expected to firm up expectations of a strong economic recovery.

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 90.905, near its lowest level this week.

EUR/USD traded largely flat at 1.2060, having gained 0.5% Thursday, USD/JPY rose 0.1% to 109.16, the risk-sensitive AUD/USD fell 0.2% to 0.7766, while USD/CAD rose 0.2% to 1.2176, having fallen to a 3-1/2-year low of 1.2145 overnight, helped by the Bank of Canada's recent tapering of its asset purchases and its shift to more hawkish guidance.

The greenback has traded in narrow ranges Friday, with traders focusing on the release of U.S. payrolls data, at 1230 GMT, which are expected to confirm the U.S. labor market is on a solid path towards recovery from the pandemic.

Economists polled by Investing.com earlier in the week expected, on average, 978,000 new U.S. jobs in April, after gains of 916,000 in March.

That said, expectations are likely even more elevated now after data on Thursday showed the number of Americans filing new claims for unemployment benefits fell below 500,000 last week for the first time since the Covid-19 pandemic began.

“The recent declines in jobless claims – as well as many surveys (NFIB's job openings at a record high) – suggest that payrolls growth is accelerating. We would thus lean towards positive surprises in coming months,” said analysts at Nordea, in a note.

While strong economic data could lead to more risk taking as traders’ confidence grows, it could also lead to higher Treasury yields, helping the dollar, as the market anticipates the Federal Reserve tightening its monetary policies sooner than previously expected.

However, for now, most traders seem to be prepared to take the Federal Reserve at its word that stimulus tapering will not be on the agenda any time soon.

Elsewhere, GBP/USD rose 0.1% to 1.3902, with sterling struggling to post any serious gains despite the Bank of England slowing the pace of its bond-purchasing program at its meeting Thursday.

Political uncertainty is capping any sterling gains as the Scots go to the polls, potentially triggering a battle between the Scottish National Party and British Prime Minister Boris Johnson over another independence vote.

That said, “regardless of the result, most don't expect an imminent vote on independence. Given a second referendum (if one happens) is probably years away, there's limited need for such a risk premia to be priced into sterling,” said analysts at ING, in a note.

Also, USD/CNY rose 0.1% to 6.4623, just above a two-month low, after China’s trade data for April came in better than expected, with exports growing 32.3% year-on-year and imports growing 43.1% year-on-year.

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