Dollar, U.S. Jobs Report, and the Federal Reserve

The U.S. dollar hovered near a two-week high on May 6, combining ahead of an important jobs report that may provide useful information on when the Federal Reserve will change its monetary stimulus. The dollar rebounded from a one-month low over the past week, supported by U.S. economic data. The data mostly supported the case for a rapid recovery from the coronavirus pandemic.

The Canadian dollar traded near a three-year high, supported by oil price gains.

The Australian dollar declined amid a deterioration in Australia’s relationship with China. It declined 0.2% to $0.7728 after China decided to suspend all activities under China-Australia strategic economic dialogue mechanism.

Interestingly, the dollar index was little changed at 91.311 on Thursday. It reached as high as 91.436 for the first time in several weeks in the previous session. The index which measures the U.S. currency against six major peers fell as low as 90.422 on April 29.

The euro traded right around the physiologically important $1.20 mark on May 6. On Wednesday, the euro declined $1.1986 for the first time since April 19.

The dollar bought 109.375 yen, consolidating after reaching as high as 109.695 on Monday. Its best result since April 13.

Sterling was little changed at $1.3899, consolidating around that point over the past two weeks. The Bank of England is expected to make an important decision, as some forecasters expect the central bank to announce a tapering of its bond-buying program on Thursday.

Fed will not raise its benchmark funds rate through 2023.

So far, Fed Chair Jerome Powell argued the labor market is far short of where it needs to be to initiate discussions about its policies. The country’s central bank said it will not raise its benchmark Fed funds rate through 2023. Three Fed officials spoke with Chicago Fed President Charles Evans on Wednesday. Evans was more optimistic about U.S. growth than he was several months ago. The Chicago Fed President expects monetary policy to stay super-easy for some time.

Boston Fed President Eric Rosengren said inflation will be temporarily misrepresented this spring due to the U.S. economy. The country’s economy works through imbalances created by the pandemic but pressures should be short-lived. Also, they should not lead to a retraction in monetary policy.

Cleveland Fed President Loretta Mester believes that more progress will be needed in the job market before the Fed’s conditions for curtailing its robust support will be met.