Dollar recovers some ground after payrolls blow, Yellen in focus

The dollar rose on Monday, having hit a more than three-week lows against a basket of major currencies after a poor employment report prompted investors to rule out the chance of a hike in U.S. interest rates in June.

The dollar index .DXY rose 0.2 percent to 94.246, having hit a low of 93.855 on Friday – a level last seen on May 12. It tumbled 1.6 percent on Friday, posting its second biggest one-day drop this year.

Friday’s data showed nonfarm payrolls increased by only 38,000 jobs last month, the fewest in more than 5-1/2 years, confounding forecasts for a rise of 164,000 jobs.

Investors have almost priced out the chance of a rate increase at the Fed Reserve’s June 14-15 policy review, and reduced the likelihood of a July rate hike to around 30 percent from around 60 percent.

With worries about Brexit also gathering, investors are increasingly uncertain whether the Fed will raise rates in the near term.

Many traders suspect Federal Chair Janet Yellen, who is due to speak on economic outlook and monetary policy to the World Affairs Council of Philadelphia at 1630 GMT, will craft her message to keep expectations for a July hike alive.

“Rate hike expectations for June have disappeared. And while the focus has shifted to July, we expect the dollar to be rather subdued this week, with not much of economic data out of the U.S.,” said Yujiro Goto, currency strategist at Nomura.

“Dollar/yen should trade in a 105-110 yen range while the euro will be in a $1.10-$1.15 range.”

Against the yen, the dollar slid to a one-month low of 106.35 JPY= on Friday, before bouncing back to trade 0.6 percent higher at 107.22 yen on Monday, thanks to bargain-hunting after its big fall on Friday.

With the yen near its 18-month peak of 105.55 hit in early May, some traders are getting wary of threats of intervention from Japanese authorities.

“We are close to the 105 handle, where Finance Minister (Taro) Aso talked about intervention last time. So there is a certain degree of cautiousness,” said a trader at a major Japanese bank.

Japan’s vice finance minister for international affairs, Masatsugu Asakawa, on Monday stuck to his usual comments that he was closely watching movements in currency markets.

The euro fell 0.2 percent against the dollar having climbed to its highest in three weeks at $1.1375 EUR= on Friday. Worries about Britain leaving the European Union were dragging the single currency lower against the dollar, traders said.

Sterling fell more than 1 percent to a three-week low against the dollar after two polls published at the weekend pointed to the “Leave” camp edging ahead of the June 23 vote on whether Britain will stay in the European Union or not.

The pound was 0.9 percent lower at $1.4375 GBP=D4 after having fallen to as low as $1.4352, its lowest since May 16.

Source: Reuters