Dollar firms as Fed members talk about tightening

SYDNEY, Aug.5 (Reuters) – The dollar was poised to rise Thursday as hawkish comments from the U.S. Federal Reserve led markets to advance the likely timeline for policy tightening, while measures in Europe and Japan remain distant prospects.

The euro was down to $ 1.1837, having retreated from an overnight high of $ 1.1899 and marking another failure to break resistance around $ 1.1910.

The dollar also rebounded to 109.51 yen, following a low of 108.71 on Wednesday, reversing what had been a bearish breakout to the downside.

The rally came after Fed Vice Chairman Richard Clarida said the conditions for an interest rate hike could be met by the end of 2022, paving the way for a move in early 2023 . read more

He and three other Fed members also signaled a decision to gradually reduce bond purchases later this year or early next year, depending on how the labor market develops over the next few months.

“This reflects a hawkish drift within the committee on the risks of more persistent inflation and what it might mean for the achievement of the Fed’s new inflation framework,” said Brian Daingerfield, analyst at NatWest Markets.

“That’s all to say that the stakes for wages on Friday, and wages beyond, are very high.”

Predicting the jobs report with confidence remains particularly tricky as the spread of the Delta variant and workforce bottlenecks disrupt the market.

So while the median wage bill forecast is 870,000, the range of estimates extends from 350,000 to 1.6 million.

The mixed data on Wednesday added to the darkness, where a surprisingly weak ADP private hiring report collided with the strongest reading on record for U.S. services. Read more

Clarida’s comments led investors to predict a little more chance of a late 2022 / early 2023 hike and a flattening of the Treasury yield curve as short-term yields rise.

Such a move would likely come long before any tightening of the European Central Bank, which is still struggling to bring inflation closer to its target.

In contrast, the Bank of England is much closer to the cut and may expand the schedule at a policy meeting later Thursday. Read more

This outlook helped the pound recover at the start of the year, although it has deteriorated significantly over the past two months. It was last pinned near support at $ 1.3884, after repeatedly failing to break through resistance above $ 1.3980.

All of these central banks are lagging behind the Reserve Bank of New Zealand (RBNZ), which appears likely to hike rates at its next policy meeting on August 18, making it the first in the developed world to move since the start of the pandemic.

A very strong jobs report on Wednesday only added to the case for a New Zealand tightening and sent the kiwifruit to a month-long peak of $ 0.7088 overnight, before stabilizing at $ 0.7041.

Reporting by Wayne Cole; Editing by Sam Holmes

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