Dollar loses ahead of payroll data, but strategists see gains ahead

The dollar fell against all of its major peers before pivotal US payroll data due Friday, but strategists say the pullback may just be temporary. 

Bloomberg’s gauge of the US currency slipped for a second day after climbing to a 10-month high on Wednesday. The greenback turned lower as falling Treasury yields sapped demand for the currency. 

“We think the market is taking a breather ahead nonfarm payrolls and other labor-market data releases tomorrow,” said Rodrigo Catril, a strategist at National Australia Bank Ltd. in Sydney. “Another positive surprise and we wouldn’t be surprised to see both the US dollar and 10-year Treasuries testing recent highs.”

The dollar has strengthened against all of its Group-of-10 peers in the past six months, with the yen and New Zealand dollar leading losses. Authorities from Japan to South Korea have been seeking to bolster their currencies as the surging greenback threatens to fan inflationary pressures. 

“Looking beyond the potential intervention noise, nothing fundamentally has changed and we see no reason to believe the dollar’s uptrend has ended,” Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. in New York, wrote in a note to clients. “Like last week’s correction, we believe this week’s dollar weakness is also corrective in nature.”

HIRING TO SLOW

US employers are forecast to have added 170,000 workers in September, down from 187,000 the previous month, according to the median estimate of economists surveyed by Bloomberg ahead of Friday’s data. Signs that US economic growth is slowing may pull down Treasury yields and limit further dollar gains.

The dollar is likely to rise against “virtually everything” into year-end before the Federal Reserve starts cutting interest rates to bolster a slowing economy in 2024, said Gareth Berry, a currency and rates strategist at Macquarie Group Ltd. in Singapore.

“We have another couple of months of dollar strength ahead of us on US growth outperformance first, and then eventually risk aversion too,” he said. But, we are “expecting a big dollar selloff in 2024 as central banks start cutting, with the Fed leading the charge.”