The dollar held near a two-month high against a basket of major currencies on Monday, having staged a broad rally after upbeat U.S. jobs data bolstered the case for the Federal Reserve to scale back stimulus as early as next month.
The dollar index .DXY eased 0.1 percent to 81.262 but stayed within sight of a two-month high of 81.482 set on Friday after a closely watched report showed employers added 204,000 new jobs to their payrolls last month, soundly beating forecasts for 125,000 jobs.
The data was even more remarkable as it came in a month when a budget standoff in Washington forced a 16-day government shutdown, suggesting the economic recovery was on a firmer footing than expected.
“The market has kind of re-priced the tapering expectations with the data opening the possibility that tapering could take place much sooner than the March consensus. So it’s shifting back to the December or January kind of time frame,” said Sim Moh Siong, FX strategist for Bank of Singapore.
“I think the dollar generally will stay supported,” he added.
Despite that, Federal Reserve Chairman Ben Bernanke and two other top policymakers said there is still plenty of room for the jobless rate to fall further, suggesting continued support for the central bank’s massive stimulus program.
“Our baseline case remains that the Fed would start tapering in March 2014, but the solid NFP number keeps December tapering on the table and the next November employment report will be critical for the Fed’s decision,” analysts at Barclays Capital wrote in a note to clients.
Investors reacted to the jobs numbers by driving the benchmark 10-year yield up as far as 2.763 percent, the highest since September 20.
That in turn provided support for the dollar, which held steady versus the yen at 99.04 yen after having jumped around 1 percent versus the Japanese currency on Friday.
EURO UNDER PRESSURE
The euro wallowed at $1.3357, down 0.1 percent on the day and not that far from a two-month trough of $1.3295 plumbed last Thursday after the European Central Bank surprised the market by cutting its main rate to a record low 0.25 percent.
ECB Executive Board member Benoit Coeure said on Saturday the bank can trim interest rates further and provide the banking system with liquidity.
“We continue to expect diverging monetary policy outlook to drive EUR/USD lower in the medium term,” Barclays Capital analysts added.
Not helping the common currency, S&P late in Asia on Friday downgraded France’s credit rating by a notch to AA from AA-plus, giving a thumbs-down to President Francois Hollande’s efforts to put the euro zone’s second largest economy back on track.
The Australian dollar held steady at $0.9386, struggling to gain traction after having slid to a one-month low around $0.9352 on Friday.
The fall is sure to please the Reserve Bank of Australia, which has repeatedly said the currency is too high compared with fundamentals.
The Aussie dollar failed to make the most of fresh evidence providing further signs of stabilization in the Chinese economy.
Data on Saturday showed China’s factory output and investment grew in October, while annual inflation quickened to its fastest in eight months though not as high as expected.