Dollar holds gains ahead of US jobs data; sterling tumbles

The dollar was heading for a second straight week of gains versus major peers on Friday ahead of a key U.S. jobs report and after a string of central banks this week pushed back against faster tightening of monetary policy.

Investors will be closely watching fresh U.S. labour market data due later on Friday, which could sway the timing of Federal Reserve interest rate increases.

The dollar index, which measures the greenback against a basket of six rivals, has strengthened nearly 1% over the past fortnight and consolidated its gains on Friday, up 0.1% ahead of the jobs data at 94.452.

Investors have been forced to reset monetary policy expectations this week, after some of the biggest global central banks knocked back bets for early rate hikes.

The Bank of England's decision on Thursday not to lift rock-bottom benchmark rates proved the biggest shock for markets and pushed sterling to its biggest one-day fall in more than 18 months by as much as 1.6% on the day.

Sterling fell a further 0.4% on Friday, hitting a fresh one-month low of $1.34390.

Earlier in the week, the Reserve Bank of Australia also stuck to its dovish stance despite inflationary pressure and held rates. The Aussie is on track for a nearly 2% weekly fall, and was last down 0.3% on the day at $0.73795.

European Central Bank President Christine Lagarde pushed back on Wednesday against market bets for a rate hike as soon as next October and said it was very unlikely such a move would occur in 2022.

"The scaling back of rate hike expectations outside of the US has helped to lift the dollar index back towards last month's high at 94.561," analysts at MUFG said in a note.

"A stronger US dollar has been encouraged as well in recent days by further evidence that US activity is picking up again."

Fed Chair Jerome Powell said on Wednesday he was in no rush to hike borrowing costs, even as the Federal Open Market Committee announced a $15 billion monthly tapering of its $120 billion in monthly asset purchases.

The Fed has set a labour market recovery as a condition for a rates lift-off. U.S. non-farm payrolls due later on Friday are forecast by economists to show a 450,000 surge in jobs in October, following a 194,000 rise in the prior month.

"The FOMC delivered a 'dovish taper,' but the USD is still better positioned than most," Westpac strategists wrote in a client note.

The euro was little changed at $1.15420 after dropping 0.5% overnight, while the dollar was roughly flat against the yen at 113.745 yen.

Among cryptocurrencies, bitcoin was around $62,000, having largely traded sideways since it hit its all-time high above $67,000 last month.

 

(Reporting by Iain Withers, Additional reporting by Kevin Buckland in Tokyo, Editing by Andrew Heavens)