Dollar adds to gains against yen after stellar US jobs data

The dollar built on gains since Friday’s bumper United States jobs numbers on Monday, gaining about a third of a per cent against the yen ahead of a week of data likely to feed the debate on the chances of a rise in US interest rates this year.

Dealers cited an interview with Federal Reserve policymaker Jerome Powell in the Financial Times, conducted before Friday's data, as quelling any speculation the Fed could raise rates as soon as September, seen in any case as only a 15 per cent chance.

Retail sales numbers

But the jobs numbers on Friday were strong enough to push expectations for a rise in December to closer to 40 per cent, and data this week, in particular retail sales numbers on Friday, will feed that debate.

Market indications of volatility, however, have dropped back sharply in the past week to close to their lowest this year, suggesting trading has moved firmly into a summer lull.

“The dollar took a big boost from the jobs numbers on Friday and there is a part of the market that expect that to follow through into retail sales on Friday,” said Citi strategist Richard Cochinos.

“But really it’s August trading at the moment and we’re struggling to find clear drivers.”

In early trade in Europe, the dollar was up 0.1 per cent against the basket of currencies used to measure its broader strength. It firmed a third of a per cent to 102.21 yen and was flat at $1.1088 per euro, having gained to as little as $1.1046 on Friday, its strongest in more than a week.

Payroll growth

US nonfarm payrolls rose by 255,000 jobs in July, far above economists’ median forecast of an increase of 180,000 while payroll growth in June was also revised up to 292,000, with hiring broadly based across the sectors of the economy.

"The payrolls data puts markets on risk-on mode, making it difficult to buy the yen for now," said Yukio Ishizuki, currency strategist at Daiwa Securities.

In broader terms, the dollar is still recovering from a four-month high hit late last month on the back of a fall back in expectations for any move by the Fed this year.

With other central banks in easing mode – the Bank of England unveiled a package of measures last week – investors think uncertainty around the Chinese economy and Britain's prospective departure from the European Union will help keep the Fed cautious.

Another big set-piece this week is the Reserve Bank of New Zealand’s policy meeting, widely expected to cut interest rates there to 2 per cent.

“A 25 basis point cut is completely discounted, with an additional 35 basis points priced into the curve after that,” RBC Capital Markets strategist Sue Trinh said in a note to clients.

“While our NZ economists’ baseline scenario is that this is the final cut of this cycle, risks are skewed to further easing. The set of forecasts provided in the full quarterly Monetary Policy Statement will be important in refining their view.”