The dollar faces a rocky week as foreign-exchange markets focus on the monthly U.S. employment report, a European Union meeting and details of a Greek bond restructuring.
Already, the U.S. currency is on the back foot after the Federal Reserve said it expects to keep interest rates low into 2014.
January nonfarm payrolls data, due Friday, have taken on added significance in the wake of a disappointing reading on fourth-quarter economic growth. Gross domestic product expanded by 2.8% between October and December, up from 1.8% annualized growth in the third quarter, but below economists' forecast of 3% growth.
An Eye on Jobs
If the employment data are weak, the dollar could fall, as it raises the odds that the Federal Reserve could introduce a new round of bond-buying sooner than expected. This would effectively pump more dollars into the market, hurting the greenback.
If the data are strong, the central bank may hold off on such an easing policy, reinvigorating the dollar.
Some Fed officials, including William Dudley, president of the Federal Reserve Bank of New York, think the Fed will have to take more steps to boost the sluggish economy.
Unemployment is "likely to remain unacceptably high for the near term," Mr. Dudley, a voting member of the Fed committee that decides on stimulus measures, said Friday at a quarterly regional economic media briefing.
On Wednesday, the Federal Open Markets Committee reiterated its intention to continue boosting the economy with low interest rates for the next few years. The committee said it anticipates economic conditions are likely to warrant exceptionally low levels for the federal funds target rate beyond its earlier estimate of mid-2013.
A Climb to $1.36?
"The easy policy in the U.S. means there is a rush to other currencies, and the euro will lead the charge," said Douglas Borthwick, head of trading at Faros Trading in Stamford, Conn.
He predicted the euro could reach $1.36 in the next two weeks. The currency stood at $1.3219 late Friday, up from $1.3109 on Thursday. The euro rose every day last week against the dollar, climbing a combined 2.2% for its biggest weekly gain since mid-October.
A resolution to Europe's sovereign-debt crisis is also high on investors' watch list.
On Monday, European Union leaders will gather in Brussels to finalize accords creating a permanent bailout mechanism and enforcing greater fiscal discipline among members while also seeking to tackle slow growth and high unemployment. Talks among the 27 EU leaders may be overshadowed should Greece and its creditors reach a deal to reduce its privately held debt.
"Everyone is waiting to see what greater fiscal integration in Europe will look like and how the Greek debt swap is structured," said Aroop Chatterjee, foreign-exchange strategist at Barclays Capital in New York. "The market will be looking at how the deal is structured because that will set the tone for other potential restructuring. If there is a deal, there will be pressure on other European countries to follow suit."
Meanwhile, the euro floor of 1.20 Swiss francs, established by the Swiss National Bank in September, could be tested during the week. The SNB regards the franc as too strong at that rate, and Swiss exporters say they are hurt by it. Friday, the franc reached its strongest point against the euro since September, as the common currency fell to 1.2060 francs, from 1.2086 francs.
That said, the bank has yet to sell francs to raise the euro's floor to 1.25 francs or higher, as some have expected. Failure to keep the franc's value down would undermine the central bank's credibility in the market, making future interventions more difficult.
read more: Olympus Wealth Management
No comments:
Post a Comment