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FOREX-Dollar dips as market recovers from weak U.S. jobs data

Fri, 4th Sep 2020 21:10

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
(New throughout)

By Kate Duguid

LONDON, Sept 4 (Reuters) - As risk assets recovered on
Friday afternoon, the safe-haven U.S. dollar dipped, retracing
gains made on safe-haven demand following a Labor Department
report that job growth slowed further in August, threatening the
economy's recovery from the COVID-19 pandemic.

Employment slowed and permanent job losses increased as
programs to help businesses pay wages have lapsed or are on the
verge of ending. Economists credited government largesse for the
sharp rebound in economic activity after it nearly ground to a
halt following the shuttering of businesses in mid-March.

The dollar index rallied to its highest in a week
following the report. But those gains were erased on Friday
afternoon as U.S. stock indexes recovered after earlier hitting
their lowest level in a month.

The dollar index was lower on the day, last trading down
0.10% at 92.752, though it remains 1.1% higher than the April
2018 low of 91.74 on Tuesday after the U.S. central bank
overhauled its policy framework last week, which would allow it
to keep rates lower for longer periods, a negative for the
dollar.

Investors see a downward trajectory for the dollar in the
longer term.

"Dollar rallies are going to be faded unless there is a
major surprise on the risk front," said Mazen Issa, senior
foreign exchange strategist at TD Securities.

The dollar's downtrend will continue for at least another
three months due to the outlook for the Fed's monetary policy, a
Reuters poll of analysts showed on Friday.

The drop in the dollar at the start of the week pushed the
euro above the key $1.20 level for the first time since 2018.
But those gains quickly faded after European Central Bank chief
economist Philip Lane said the eurodollar exchange rate "does
matter" for monetary policy, suggesting the euro's rise had come
too fast and strong for the ECB's liking.

"The focus is going to be on what happens at the ECB meeting
next week," said Issa, explaining that if the euro's recent
rally is mentioned in the central bank's official statement, it
is likely to have a major impact on foreign exchange markets. If
it is relegated to the Q&A session, markets will shrug it off.

The euro was last trading roughly flat on the day at
$105.889.
(Reporting by Kate Duguid in New York and Saikat Chatterjee in
London; Editing by Andrea Ricci and Jonathan Oatis)

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