The US dollar ended the week on a high, posting its best day in more than six months following Friday’s solid US employment data.
The US Dollar Index (DXY) surged from levels in the high 92s to the high 93s after the US Bureau of Labor Statistics said that non-farm payrolls had risen by 209,000 in July. The market estimate heading into the release had been for a rise of 182,000.
Wage growth also picked up, with average hourly earnings rising 0.3% in July from 0.2% in June, and the unemployment rate fell as expected to 4.3%.
A gain of 0.75% on the day for DXY not only marked the index’s best performance since January 18th, but perhaps more importantly for overall dollar sentiment, it allowed the index to avoid a fourth consecutive losing week.
The dollar avoided a sixth consecutive weekly fall against the Canadian dollar with Friday’s burst back above C$1.26. USD/CAD rose 0.5% on the day, closing at C$1.2649.
Against the euro, the dollar’s gain of 0.8% was insufficient for preventing another weekly loss. A fall of 0.2% from the previous Friday marks the dollar’s fourth consecutive week of losses against the euro and its fifth weekly decline in six.
EUR/USD’s fall from Wednesday’s high above $1.19 to this week’s close at $1.1773 should, however, inspire at least a little confidence in dollar bulls, especially given the formation of a classic shooting star pattern on the weekly EUR/USD chart.
Against the Japanese yen, the dollar’s post-payrolls gain of 0.6% was sufficient only to cancel out Thursday’s fall of roughly the same amount. USD/JPY ended little changed on the week and now stands at ¥110.68.
Against the Australian dollar and New Zealand dollar, holders of American currency will be happy that AUD/USD and NZD/USD were unable to close above the psychologically significant levels of 0.8 and 0.75 respectively. AUD/USD and NZD/USD ended the week at $0.7929 and $0.7413.
Despite having a good day, and in some cases a good week, Friday’s rally does little to alter the bigger picture of dollar doom and gloom this year.
Analysts failed miserably in late 2016 and early in the year when they predicted a dollar buying frenzy in 2017 on the back of pledges by President Trump to implement highly inflationary policies, including tax cuts, deregulation and up to $1 trillion in infrastructure spending – policies which surely would have necessitated much higher US interest rates.
One Citi Bank analyst described a long dollar position taken in February as the “greatest FOMO [fear of missing out] trade of all time” and suggested that fund managers were risking their jobs by not being long dollars.
Needless to say, entering the eighth month of the year Donald Trump’s policies are yet to materialize and this is the basis for the dollar’s fall in six of the year’s first seven months, and also for the IMF’s downgrade of its US growth forecasts in June. The currency remains close to long-term lows against many of the majors and some emerging market currencies, particularly the euro, Australian dollar, New Zealand dollar, Canadian dollar and Thai baht.
The dollar has suffered in recent months as US inflation data has taken a turn for the worse and a shadow has been cast over the previously accepted trajectory of US interest rates.
Following Friday’s positive jobs data, the probability indicated by derivatives markets of a further quarter-point hike by the Federal Reserve in 2017 remains comfortably below 50%.
On the bright side, with the dollar so cheap by recent standards, now is a great time for those outside America to make payments for American goods or take American holidays.
Those in need of American currency for any purpose should first check our comparison calculators for USD foreign currency transfers and USD travel cash before changing money. By doing so, you’ll bypass the rip-off exchange rates on offer at many banks and airport money changers.
Disclaimer: Please note any provider recommendations, currency forecasts or any opinions of our authors should not be taken as a reference to buy or sell any financial product.