Dollar gains, global shares flat ahead of US jobs data

Published: 05 July 2013

LONDON - The dollar rose against the euro and sterling on Friday after the British and eurozone central banks said they planned to keep rates low, while commodities fell in nervous trading before a crucial US jobs report.

Traders said the dollar could test the three-year high against a basket of currencies hit in May if the payrolls data came out mildly positive because it would bolster talk of an imminent cut in the Federal Reserve's bond-buying programme.

Economists expect the data at 12.30pm GMT will show 165,000 jobs added in June and the jobless rate ticking down to 7.5% from 7.6% in May, a Reuters poll shows.

"If we get nonfarm (payrolls) at 165,000, in line, you keep the tapering story in play and you keep the dollar on the front foot," said HSBC FX strategist Daragh Maher.

"We're looking at a structurally stronger dollar and the euro would be an echo to that," he said.

European shares steadied and the euro slid 0.2% on Friday to a five-week low of $1.2869 after the region's central bank surprised investors on Thursday with a commitment to keep rates low for an extended period.

That promise and the European Central Bank's hint it may cut rates further ended a policy of not commenting on the outlook, and has widened the gap between 10-year US Treasury bonds and their German equivalent, which further supports the dollar.

The 10-year Treasury note was yielding about 2.54% on Friday compared with 1.67% for German bunds, the widest gap since April 2010.

The pound eased too after the Bank of England, under new governor Mark Carney, sought to guide rates lower by saying recent rises were "not warranted" by economic developments.

Sterling was near a four-month low against the dollar, dipping below $1.50 to trade at about $1.4991.

"Euro and sterling are both reeling after central banks moved to depress short-term rates and said any tightening will lead to a response," said Barclays currency strategist Chris Walker.

Divergence looms

European shares, which had their best day in 11 months on Thursday following the central bank comments, held onto most of the gains in morning trade, but investors were reluctant to do much before the payroll numbers.

For equity investors, any hint in the data of an early end to the Fed's $85bn monthly spending on bonds has to be offset against the promise of future policy support from two of Europe's biggest central banks.

"It's going to be an interesting day," said Saxo Bank head of equity strategy Peter Garnry.

"Anchoring into the future of lower rates from the ECB ... will be positive for equity markets in that region," he said, while strong payroll data "could create a negative reaction in the short term."

Trading in Europe's broad FTSEurofirst 300 index was jittery after gaining 2.4% on Thursday and by midmorning the index was little changed.

Bond markets were mostly steady as well with bund futures five ticks lower at 142.22, though Portuguese debt recovered some of its losses this week after the country's prime minister reassured investors he could resolve its political crisis.

The firmer dollar weighed on some dollar-priced commodities and gold slipped 1% to $1,236.49 an ounce. Copper was down 1.3% at $6,857.75 a tonne, while Brent crude oil dropped 4c a barrel to $105.50.

- Reuters