Dollar Edges Higher; Nonfarm Payrolls in the Spotlight

The U.S. dollar edged higher Friday ahead of the release of the widely watched U.S. monthly jobs report, which could help the Federal Reserve decide upon a more aggressive rate tightening cycle.

At 3 AM ET (0700 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 98.465.

The much anticipated U.S. jobs report for March is due for release at 8:30 AM ET (1230 GMT) and is expected to show continued signs of an improvement in the labor market, with around another 500,000 new jobs created.

The omens for a strong number are good, after data on Wednesday from the ADP Research Institute showed that U.S. companies employed an additional 455,000 people in March, and the weekly initial jobless claims data remained at a very low level on Thursday.

The U.S. Federal Reserve lifted interest rates by 25 basis points in March, for the first time since 2018, and a number of central bank policymakers have since indicated that a larger hike of 50 basis points may be needed in May to combat soaring inflation.

“We continue to doubt there is much more downside for the dollar from these levels, and markets may rebuild more long-dollar positions ahead of [Friday’s] nonfarm payrolls which may well endorse the recent hawkish re-pricing of Federal Reserve tightening expectations,” said analysts at ING, in a note.

USD/JPY traded 0.7% higher at 122.44, the pair’s first rise in four sessions as traders looked once more at the difference in government bond yields, with Bank of Japan Governor Haruhiko Kuroda making clear this week he’s determined to keep his 0.25% target for 10-year bond yields while the U.S. Federal Reserve hikes interest rates,

Elsewhere, EUR/USD rose 0.1% to 1.1071, stabilizing after earlier retreating from a one-month high of 1.1185 as optimism about a ceasefire in Ukraine drains even with new negotiations set to start later Friday.

Fears of an energy crisis in Europe are mounting after Russian President Vladimir Putin issued a Friday deadline for European buyers of Russian gas to pay in rubles, something they are not prepared to do. Moscow supplies around a third of all of Europe’s gas.

GBP/USD fell 0.1% to 1.3115, also suffering from worries about Russian gas supplies, but supported by the Bank of England repeatedly hiking interest rates to take on soaring consumer inflation.

AUD/USD fell 0.1% to 0.7475, while USD/CNY rose 0.2% to 6.3553 after the Caixin/Markit Manufacturing Purchasing Managers Index fell to 48.1 in March, the steepest rate of contraction since February 2020, from 50.4 in the previous month.

Morgan Stanley cut China’s 2022 economic growth forecast sharply earlier Friday, downgrading its full-year forecast to 4.6% from 5.1%, citing the country’s strict approach to combat COVID infections.