The dollar index.DXY, which measures the greenback against a basket of currencies, hit its highest since April on Tuesday, rising 0.4 percent to 99.371, outpacing Friday’s post-jobs report highs.
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The euro fell to a six-month low as investors weighed how far a potential interest-rate increase by the Federal Reserve and further stimulus by the European Central Bank next month are already priced into foreign-exchange markets.
Following the report, 15 of 17 primary dealers, the banks that deal with the Federal Reserve directly, said they expect it to raise rates at its next meeting in December, according to a Reuters poll. We have been wondering (and continue to wonder) whether a few hawkish Council members would be inclined to push back against providing more accommodation given the modest improvement in trends in a few recent indicators lately (including unemployment, economic sentiment, credit conditions and inflation).
“If the Treasury/Bund spread rises above 170 basis points, we could see a few more fragility in the euro”, said Jeremy Stretch, head of currency strategy at CIBC World Markets.
“This week’s employment data have made December lift-off all but certain, validating the expectation of our U.S. economics team, but markets – still suffering the after-effects of “The Interlude” – are hesitant to embrace dollar longs again”. So, the market will be looking to the multiple speeches from the ECB’s (European Central Bank) president, Mario Draghi, for more direction on the currency pair.
The ECB’s government-bond purchasing program has led to “extremely low” interest-rate levels across all maturities as the central bank diverged from its earlier pattern of responding to changes in the euro-area economy, the advisers said. Draghi was speaking in London on Wednesday though the topic is financial regulation and a European parliament hearing on Thursday may see him address monetary policy more directly.
At 0900 GMT, the benchmark Stoxx Europe 600 index was up 0.7%, Germany’s DAX was 1.1% higher and France’s CAC 40 was up 0.7%.
“The kiwi jumped on these headlines as the market interpreted them as less dovish”, said Sue Trinh, a strategist with RBC Capital Markets in Sydney.
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Sterling, which has also recovered a few ground after sharp falls last week, inched higher after a mixed bag of wage data and jobs numbers. It was 0.5 percent up on the day at $1.5175.
