Dollar Edges Higher Ahead of Payrolls; Lira Faces Inflation Test

The dollar edged higher Friday, ahead of the release of the latest monthly U.S. jobs report which could cement a quicker pace of tapering and, potentially, early interest rate hikes even amid the omicron-induced uncertainty.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 0.2% to 96.305, marginally higher for the week. That would be a sixth consecutive weekly gain, the longest stretch since January 2015.

EUR/USD fell 0.1% to 1.1284, GBP/USD dropped 0.2% to 1.3279, USD/JPY rose 0.2% to 113.34, while the risk-sensitive AUD/USD fell 0.4% to 0.7066, just above its 13-month low of 0.7063.

The dollar received a boost this week after Federal Reserve Chair Jerome Powell stated, in his testimony to Congress, that inflation was going to stay high for longer than the central bank had originally predicted, and that Fed policymakers would consider a faster tapering of its bond-buying program at their December meeting

This hawkish tone continued Thursday with San Francisco Fed President Mary Daly saying it may be time to “start crafting a plan” to raise rates to combat inflation, while Richmond Fed President Thomas Barkin talked about “normalizing policy.”

Money markets are now back pointing to the central bank raising its benchmark rate by 25 basis points at its June 2022 meeting – just as they did before the first news about Omicron.

Attention now turns to the release of the monthly U.S. official jobs report for indications that the labor market continues to strengthen. However, the normally decisive signals sent by the report are likely to be muted by knowledge that it predates the emergence of the new variant.

Nonfarm payrolls are expected to have increased by 560,000 in November, an improvement from the 531,000 jobs created in October, while the unemployment rate is expected to drop to 4.5% from 4.6% the previous month. The data are released at 8:30 AM ET (1230 GMT).

That said, both the ADP private payrolls on Wednesday and Thursday’s initial jobless claims were stronger than expected, suggesting a positive surprise is a distinct possibility.

“We have seen some support coming from the backstop to the dovish repricing of rate expectations offered by Powell’s comments … and by good ADP (NASDAQ:ADP) and ISM manufacturing figures,” said analysts at ING, in a note. “Given the material downside risks caused by the omicron variant, markets will likely require the data flow to remain quite strong to avert another dovish repricing.”

Elsewhere, USD/TRY rose 0.9% to 13.7306, with the lira again trading near record lows ahead of the release of the latest Turkish inflation data later Friday. That’s likely to put the currency under more pressure.

Data due Friday will show consumer prices rose an annual 20.7%, up from 19.9% in October, according to the median estimate in a Bloomberg survey of nine economists. That’s more than four times the central bank’s target of 5% as President Recep Tayyip Erdogan pursues a policy of lower interest rates.