Dollar Weakness; Payrolls Could Delay Fed Tapering

The dollar edged lower in early European trade Monday, continuing its weakness after falling to a two-month low on the back of Friday’s disappointing U.S. jobs report, which pointed to the ultra-low interest rate policy staying in place for some time.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down less than 0.1% at 90.183, after dipping as low as 90.130 for the first time since Feb. 26.

EUR/USD traded largely flat at 1.2158, earlier touching the highest since Feb. 26 at 1.2177, USD/JPY rose 0.2% to 108.84, while the risk-sensitive AUD/USD rose 0.2% to 0.7857.

Friday’s U.S. employment report for April came in well below expectations, with nonfarm payrolls only rising by 266,000 during the month, after robust private payrolls data from the ADP (NASDAQ:ADP) and weekly initial claims numbers had lifted expectations to a one million-plus rise.

The sharply below-consensus release “likely relieved some pressure from the Fed to shift to a less dovish rhetoric. At the same time, the data-miss was not enough to severely dent the underlying recovery story, leaving the global risk sentiment broadly supported,” said analysts at ING, in a research note.

Attention will now switch this week to inflation data, although the mantra from Fed policymakers that the increase is due to temporary factors will carry extra weight following the jobs data.

Wednesday sees the release of consumer price index figures for April, with the CPI number seen rising 3.6% on the year, a sharp rise from March’s 2.6%, and considerably above the 2% level the Fed usually seeks to limit price rises to.

Several U.S. Federal Reserve officials, including Chicago Fed President Charles Evans and U.S. Fed Governor Lael Brainard on Tuesday, will also speak in the course of the week.

Elsewhere, GBP/USD rose 0.7% to 1.4066, climbing to its highest level since late February, after the Scottish National Party failed to win an overall majority after Thursday’s vote for the Scottish parliament.

The SNP is pressing for another referendum on Scottish independence, but it fell one seat short of an outright majority, likely delaying any vote, even if one is granted, by years.

The U.K. government has so far refused to grant Scotland permission to have a repeat of the 2014 referendum.

Also, USD/CNY fell 0.1% to 6.4261, falling to its lowest level since 2018 in the wake of the U.S. payrolls release and ahead of Chinese inflation data due on Tuesday.