Dollar in retreat; Payrolls release looms large

By Peter Nurse

Investing.com - The U.S. dollar edged lower in early European trade Friday ahead of the release of the widely watched monthly U.S. jobs report which could influence future Federal Reserve monetary policy.

At 03:05 ET (08:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.1% to 104.670, falling to its lowest level since August.

The dollar has been on the wane of late, having just recorded its worst month since 2010, as Federal Reserve Chair Jerome Powell largely cemented expectations that the U.S. central bank is set to cut back the size of its interest rate hikes at its meeting later this month, the so-called pivot.

Powell said on Wednesday that it was time to slow rate hikes, noting that "slowing down at this point is a good way to balance the risks," and this view was helped by the October core PCE index, the Fed’s favorite gauge of inflation, decelerating more than expected, to 0.2% month-on-month from 0.5%.

Now, attention turns to the labor market.

The U.S. jobs report is expected to show that about 200,000 jobs were added in November, down from 261,000 the prior month, and a downside surprise could prompt hefty dollar losses.

EUR/USD slipped to 1.0518, after gains of around 1% in the previous session following a reasonably hawkish speech by European Central Bank President Christine Lagarde.

Lagarde warned earlier Friday that some European governments' fiscal policies could lead to excess demand, which would mean that monetary policies would need to be tighter than would otherwise be the case.

GBP/USD traded largely flat at 1.2254, having touched a 5-month high of 1.2311 overnight, while the risk-sensitive AUD/USD climbed 0.2% to 0.6824.

USD/JPY fell 0.5% to 134.65, with the yen being the best-performing Asian currency this week, up over 3% to an over-three-month high as falling U.S. yields removed some pressure.

USD/CNY fell 0.1% to 7.0378, with the yuan continuing to benefit from the fevered speculation that China will relax its strict anti-COVID policies amid growing public discontent over the restrictions.

Elsewhere, USD/ZAR fell 0.4% to 17.5654, with the rand rebounding a touch after dropping more than 4% on Thursday following the news that an advisory panel found potential grounds for the impeachment of South African President Cyril Ramaphosa, following the theft of $580,000.

His departure could set back reforms aimed at bolstering economic growth, stabilizing public finances, and tackling graft.