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US Dollar Index Pauses ahead of Nonfarm Payrolls

H.S. Borji
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US Dollar Index Pauses ahead of Nonfarm Payrolls

The US dollar remained elevated against a basket of currencies Thursday, as a fall in monthly jobless claims boosted expectations for another strong nonfarm payrolls report.

The US dollar index, a weighted average of the US dollar’s performance against six major rivals, paused at 81.45 after advancing in eight of the last nine sessions, according to the Bloomberg index spot exchange rate chart.

Demand for the greenback has been elevated for most of the month, as investors speculate about the pace and timing of a Federal Reserve interest rate hike. Federal Reserve Chair Janet Yellen said earlier this month the central bank would consider shifting monetary policy sooner than expected if the labour market continued to improve at a faster pace.

Federal Reserve Bank of Dallas President Richard Fisher warned about the dangers of loose monetary policy in a recent Wall Street Journal article.

“Given the rapidly improving employment picture, developments on the inflationary front and my own background as a banker and investment and hedge fund manager, I am increasingly at odds with some of my respected colleagues at the policy table of the Federal Reserve as well as with the thinking of many notable economists,” Fisher wrote in an article earlier this week.

Speaking about loose monetary policy, Fisher added that keeping monetary policy “hyper-accommodative” for too long risks “not only doing damage to the economy but also being viewed as politically pliant.”

On Friday the Labor Department is expected to show further improvement in the labour market. US employers are forecast to have added as many as 271,000 nonfarm payrolls in July, marking the sixth consecutive month job growth was above the 200,000 mark.

Expectations for further tightening in the labour market were reinforced Thursday when the government said the four-week average of jobless claims fell to the lowest level since April 2006.

Still, others believe the central bank won’t rush to raise interest rates in the face of weak earnings growth. Average earnings are growing at a rate that’s well below the historical average, a trend that could hamper consumer spending.

On Thursday the Labor Department said the employment cost index – a broad measure of total compensation costs – increased 0.7 percent in the second quarter, the biggest jump since 2008.

In other data, business conditions in the Midwestern United States plunged to their lowest level since June 2013, the MNI Deutche Borse Group reported today.
The Chicago purchasing managers’ index plunged 10 percentage points in July to 52.6, the biggest single-month decline since October 2008.

In currency news, the US dollar was trading steadily against the Japanese yen after three consecutive days of advances saw the USDJPY advance 1 percent.

The USDJPY was trading at 102.80, little changed from the previous close. The pair faces initial support at 102.18 and resistance at 103.25.

The dollar edged higher against the euro, as Eurozone inflation fell deeper into the danger zone. Eurozone consumer prices rose at an annual rate of 0.4 percent in July, a fresh multi-year low.

The EURUSD declined 0.08 percent to 1.3384. The pair faces support at 1.3371 and resistance at 1.3420.

The British pound continued to slide against the dollar, as the GBPUSD dipped below 1.69. The pair fell 0.14 percent to 1.6887. Initial support is likely found at 1.6883 and resistance at 1.6950.

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