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FOREX-Dollar set for best week in three months as pandemic recoveries diverge

· 02/04/2021 23:08
FOREX-Dollar set for best week in three months as pandemic recoveries diverge

Dollar renews highs versus euro, yen ahead of U.S. payrolls data

Many analysts see ultra-easy Fed policy ultimately capping rally

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

By Kevin Buckland

- The dollar headed for its best weekly gain in three months on Friday, lifted by growing confidence that the U.S. economic recovery will outpace global peers.

The dollar index =USD touched a new two-month high in Asian trade amid signs of resilience in the labour market, with closely watched nonfarm payroll figures due later in the global day. nL1N2K92L7

The greenback also renewed highs versus the euro and yen.

"The U.S. economy is exceptionally strong relative to other countries, causing dollar short covering," said Tohru Sasaki, J.P. Morgan's head of Japan market research in Tokyo, pointing to employment and manufacturing indicators as well as the pace of vaccinations.

The current bout of dollar strength could continue for "several weeks," he said, but the picture is murkier thereafter as Europe and Asia catch up with immunisations and the Federal Reserve's continued ultra-easy monetary policy caps a rise in long-term U.S. yields.

The dollar index drifted slightly higher to 91.576 from Thursday, touching 91.60 for the first time since Dec. 1.

The gauge has risen every day this week and is on track for a 1.1% weekly advance, the most since Nov. 1 and building on a 0.3% rise the previous week.

The greenback has been supported by a rise in longer-term U.S. Treasury yields, which came as traders positioned for massive fiscal spending. nL1N2KA1XC

Democrats in the U.S. Senate were poised for a marathon vote session aimed at overriding Republican opposition to President Joe Biden's $1.9 trillion COVID-19 relief proposal. nL1N2KA1PF

Analysts and investors are weighing whether dollar strength this year is a temporary position adjustment after a 7% drop for the dollar index in 2020, or a longer-lasting shift away from dollar pessimism.

There are potentially a lot of dollar shorts to cover, particularly against the yen, where hedge funds had racked up their biggest bearish bets since 2016.

The dollar was little changed at 105.55 yen on Friday after earlier edging as high as 105.70 for the first time since Oct. 20.

The euro was mostly flat at $1.1966 after dipping to $1.1952, a level not seen since Dec. 1.

Westpac strategists see Europe's vaccine rollout accelerating by the end of this quarter, which, coupled with the Fed's commitment to ultra-loose monetary policy, will put pressure back on the dollar.

"DXY upside potential is living on borrowed time," they wrote in a note, referring to the dollar index. "Sell DXY into 92."


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Currency bid prices at 0344 GMT

Description

RIC

Last

U.S. Close
Previous
Session

Pct Change

YTD Pct
Change

High Bid

Low Bid

Euro/Dollar

EUR=EBS

$1.1955

$1.1961

-0.05%

-2.15%

+1.1971

+1.1952

Dollar/Yen

JPY=D3

105.5350

105.5400

-0.04%

+2.14%

+105.6270

+105.5000

Euro/Yen

EURJPY=

126.17

126.25

-0.06%

-0.59%

+126.3900

+126.1700

Dollar/Swiss

CHF=EBS

0.9043

0.9044

-0.01%

+2.22%

+0.9045

+0.9038

Sterling/Dollar

GBP=D3

1.3668

1.3673

+0.00%

+0.08%

+1.3688

+1.3666

Dollar/Canadian

CAD=D3

1.2828

1.2824

+0.02%

+0.72%

+1.2829

+1.2813

Aussie/Dollar

AUD=D3

0.7589

0.7601

-0.12%

-1.31%

+0.7608

+0.7583

NZ Dollar/Dollar

NZD=D3

0.7139

0.7157

-0.20%

-0.53%

+0.7164

+0.7136










All spots FX=

Tokyo spots AFX=

Europe spots EFX=

Volatilities FXVOL=

Tokyo Forex market info from BOJ TKYFX


(Reporting by Kevin Buckland. Editing by Gerry Doyle and Sam Holmes)

((Kevin.Buckland@thomsonreuters.com;))