Dollar Consolidates After Strong Gains; Nonfarm Payrolls Due

The dollar was marginally lower in early European trade Friday, consolidating after the previous session’s strong gains and ahead of the release of key U.S. employment data which could sway the Federal Reserve’s thinking over interest rate hikes.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 94.302, after rallying 0.5% on Thursday. That lifted it into the positive for the week, adding 0.2%.

Additionally, EUR/USD rose 0.1% to 1.1562, after dropping 0.5% during the previous session, while USD/JPY fell 0.1% to 113.68.

The Fed announced the tapering of its bond-buying program earlier this week, as widely expected, but added that it would be “patient” in deciding when to raise its benchmark overnight interest rate.

While these comments were taken as being dovish by the market, the Federal Reserve is still seen as being nearer to raising its rates than many of its major peers.

European Central Bank President Christine Lagarde pushed back on Wednesday against market bets for an early rate hike, saying it was very unlikely such a move would occur in 2022. Industrial production data from Germany, France and Spain all disappointed in September, according to figures out Friday.

The Bank of England decided to stand pat on Thursday, surprising the market, citing concerns about future growth. This resulted in GBP/USD slumping 1.4% in the previous session, recovering just 0.1% to 1.3506 Friday, putting it on course for its worst week in 11.

“Policymakers have, sensibly we think, opted to wait for more information on how the recent end of the furlough scheme has played out,” said analysts at ING, in a note.

The Federal Reserve also cited the need to see a stronger labor market before it started moving on interest rates. With this in mind, the release of the official U.S. monthly jobs report later in the session will be watched carefully.

U.S. nonfarm payrolls are forecast by economists to show a 450,000 surge in jobs in October, following a 194,000 rise in the prior month.

“Special focus will be on hourly earnings, which look set to approach the 5.0% mark and may well be used (along with any above-consensus read in headline NFP) by Fed hawks to advocate further against the “temporary inflation” narrative,” ING added.