Dollar Up Over Upbeat U.S. Employment Data, but Taper Concerns Remain

The dollar was up on Friday morning in Asia, posting its biggest gains in around a month. Investors continue to focus on the ongoing economic recovery from COVID-19 following positive U.S. employment data released on Thursday, as well as the possibility of a tapering of stimulus policy.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.08% to 90.575 by 1:08 AM ET (5:08 AM GMT).

The USD/JPY pair inched down 0.01% to 110.27 after data released earlier in the day said household spending increased 0.1% month-on-month and 13% year-on-year in April.

The AUD/USD pair inched down 0.01% to 0.7657. Home loans in Australia increased 4.3% month-on-month, compared to 3.3% growth during the previous session, according to data released earlier in the day. Across the Tasman Sea, the NZD/USD pair inched up 0.08% to 0.7149.

The USD/CNY pair inched up 0.02% to 6.6049.

The GBP/USD pair inched down 0.09% to 1.4091 as investors await the U.K.’s Construction Purchasing Managers Index in May, due later in the day.

U.S. initial jobless claims fell to 385,000 in the previous week, according to data released on Thursday. The number of claims recorded a fifth consecutive week of falls to a record low since the start of the COVID-19 pandemic in 2020.

Investors now await May’s non-farm payrolls data, due later in the day. Forecasts by Investing.com expected growth of 650,000 jobs in May.

“Clearly traders are covering dollar shorts into the jobs data,” said Chris Weston, head of research at brokerage Pepperstone, told Reuters.

“Between 250,000 to 500,000 jobs and we’ll potentially see the dollar/yen pair fall 0.6% to 0.8%,” Weston said. “A number in line will not give us much to work with, so the moves in the market will be dictated by the broad quality of factors, revisions to the April print of 266,000, the unemployment rate, hourly earnings,” he added.

Positioning data shows investors are heavily short dollars, with the market hypersensitive to any indication of a change in direction for the greenback or interest rate hikes. That could lead to a bumpy ride for the options market.

Brian Daingerfield, head of G10 currency strategy at Natwest, told Reuters that a payrolls print around 550,000 as the “goldilocks” number, “strong enough to keep the recovery going but not strong enough to pull tapering fears forward.” That could weaken the dollar broadly, offsetting Thursday’s gains, he added.