The dollar rose to a 2-1/2-month high, posting its biggest monthly gain since November 2016 on Wednesday, as a surprisingly hawkish shift in the U.S. Federal Reserve's interest rate outlook and concerns over the spread of the coronavirus backed up Variants.
The dollar has gained about 3% against a basket of currencies this month, in part due to the Federal Reserve's stance at a meeting earlier this month. Traders are watching Friday's U.S. non-farm payrolls report for confirmation of a shift in monetary policy.
The dollar also extended gains after data showed U.S. private payrolls rose by 692,000 in June, beating expectations. May's data was revised downward to show a gain of 886,000 jobs instead of 978,000 as initially reported. Economists polled by Reuters had forecast private payrolls rising by 600,000.
Action Economics said the dollar was mainly supported by better-than-expected U.S. private employment data, "which drove dollar short covering ," ahead of the jobs report.
The research firm also noted strength in U.S. short-term Treasury 2-year yields, which rose nearly 11 basis points in June, the biggest gain since September 2019, as investors anticipate tightening in 2023.
Action Economics said in its blog: "This should continue to help the dollar moving forward, as the Fed is expected to start tightening first." "In addition, U.S. economic growth is likely to easily exceed that of Europe."
According to Reuters, economists According to a survey, the U.S. Labor Department on Friday is expected to report that jobs increased by 700,000 in June, compared with 559,000 in May, and the unemployment rate was 5.7%, compared with 5.8% last month.
"If we see stronger-than-expected U.S. jobs data, then that reinforces the argument that the Fed could unwind its accommodation sooner than previously expected," said Erik Nelson, macro strategist at Wells Fargo Securities in New York. "That will be positive for the dollar."
Investors are also concerned about the spread of the Delta variant, which has prompted some countries, including Australia, the United Kingdom and parts of Europe, to adopt or plan to reimpose lockdowns, sending their currencies into trouble. This has put a bid on the dollar.
In afternoon trade, the U.S. dollar index , which measures the greenback against a basket of six major currencies, rose 0.4% to 92.441, having previously hit 92.451, its highest since early April.
The euro fell 0.4% against the dollar to $1.1849. Earlier, the euro fell to a 4-1/2-month low of $1.1845. The dollar rose 0.5% against the yen to 111.09 yen. It rose to 111.12, its highest level since late March last year.
Risk-sensitive and commodity-exposed currencies such as the Australian dollar and New Zealand dollar fell against the dollar. The Australian and New Zealand dollars fell 0.2% and 0.1% to $0.7496 and $0.6983 respectively.
