Dollar edges lower ahead of key payrolls release

The U.S. dollar edged lower in early European trade Friday as traders awaited the release of the key U.S. payrolls data later in the session for more clues of the health of the country’s economy.

At 03:05 ET (07:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 102.278, having climbed as high as 102.84 in the prior session, its highest since July 7.

Dollar bulls pause ahead of payrolls
Healthy labor market data so far this week had boosted the dollar to four-week highs, with private payrolls growing substantially more than expected in July.

However, traders appear reluctant to push the dollar much higher ahead of the release of the eagerly awaited official jobs report later in the session.

Nonfarm payrolls are expected to have increased by 200,000 jobs last month, after rising 209,000 in June. That would be the smallest gain since December 2020, but with the unemployment rate steady near multi-decade lows it would indicate a still-tight labor market.

Additionally, wage growth is expected to have slowed in July, relieving some of this form of inflationary pressure.

The Federal Reserve next meets in September, and Chair Jerome Powell has made it clear that the policymakers will be studying the incoming data carefully before making further monetary policy decisions.

Sterling flat after BOE meeting
GBP/USD traded largely flat at 1.2712, the day after the Bank of England lifted its benchmark interest rate by 25 basis points to a 15-year high of 5.25%.

Although this was the BOE’s 14th consecutive interest rate increase to combat inflation, it was a smaller rise than the prior month’s 50 basis points and has raised speculation that the central bank is considering ending its tightening cycle.

NatWest (LON:NWG) Markets has cut its forecast for the peak in rates to 5.5%, down from 6% it previously forecast, citing the Bank’s new guidance.

“The apparent rowing-back in the MPC’s policy-tightening guidance leaves us comfortable maintaining our negative bias on sterling,” NatWest said.

Euro helped by strong German industrial orders
EUR/USD rose 0.1% to 1.0951, helped by German industrial orders rising significantly more than expected in June, climbing by 7.0% on the month due to large-scale orders in several sectors.

On the flip side, French industrial production fell 0.9% in June, a weaker result than the fall of 0.3% expected and considerably below the previous month’s 1.1% growth.

Elsewhere, USD/JPY traded flat at 142.56, while USD/CNY rose 0.2% to 7.1814 after Chinese officials once again offered no concrete details on the planned stimulus measures, souring investor optimism over a potential economic recovery in the country.