Dollar Steady After Fed Talk Drives Fresh Surge; Payrolls Eyed

By Geoffrey Smith

Investing.com -- The dollar was broadly flat in early dealings in Europe on Friday, holding on to the gains it made on the back of more hawkish commentary from the Federal Reserve on Thursday.

By 03:30 ET (07:30 GMT), the dollar index, which tracks the greenback against a basket of six advanced economy currencies, was roughly unchanged at 112.15 having risen over 1% in the last two sessions as the Fed pushed back against market expectations of an early 'pivot' to an easier monetary policy.

On Thursday, Fed Governor Christopher Waller had warned that interest rates would keep rising into next year, while Chicago Fed President Charles Evans said that he expects the Fed Funds rate to reach 4.75% before the Fed stops tightening.

“We currently do not face a tradeoff between our employment objective and our inflation objective, so monetary policy can and must be used aggressively to bring down inflation,” Waller said, hours after another set of data showing initial claims for jobless benefits still running at historically low levels. ADP's payrolls report on Wednesday had also pointed to employment continuing to grow at a decent pace in September, despite a sharp drop in vacancies reported in the previous month by the Labor Department.

The market is now bracing for the official labor market report for September, due at 08:30 ET. Analysts expect nonfarm payrolls to have grown by 250,000, a slowdown from 315,000 in August but still far from recessionary levels.

In Europe, meanwhile, the pound and euro struggled after fresh data showed the U.K. and German economies slowing further: both retail sales and industrial output in the Eurozone's largest economy fell more than expected in August, while mortgage lender Halifax reported the second monthly drop in three months in house prices.

The pound also had to contend with the first warning from National Grid (LON:NG) that it may have to impose rolling blackouts this winter if Russian gas supplies are completely shut off - which currently seems likely - and temperatures fall below their usual levels. European head of government, meanwhile, will continue their discussions over a possible price cap on natural gas at a meeting in Prague later.

EUR/USD edged 0.1% higher to $0.9798, while GBP/USD recovered from an early dip to trade flat at $1.1160

The dollar's gains overnight were checked by more verbal intervention to support the USD/JPY as it again fell through the level of 145 to the dollar. Prime Minister Fumio Kishida told parliament that "sharp, one-sided yen declines, such as those seen recently, are undesirable.”

It continued to gain against the Korean won, however, rising 0.4% after weak earnings reports from the key semiconductor industry, notably from domestic giant Samsung.