Dollar gets limited lift from jobs, trade questions linger

SYDNEY – The dollar was struggling to hold its ground on Monday even as concerns about a US recession eased just a little, while investors awaited actual evidence of a thaw in Sino-US trade relations, as opposed to just hints from officials.

The solid March payrolls report had offered the dollar support by lengthening the odds on a Federal Reserve rate cut in June, and making it more likely the central bank will lean hawkish at its policy meeting this week.

“The labor report leaves little doubt that the FOMC will keep rates on hold this week, and the bar for cutting is now even higher for June,” said Michael Feroli, head of US economics at JPMorgan.

“In a period of high uncertainty, with two-sided risks to the dual mandate, the Fed Committee will prefer to remain patient until there is more clarity in the outlook.”

Markets now imply only a 37% chance of a Fed cut in June, down from 64% a month ago. Goldman Sachs and Barclays both shifted their cut calls to July from June.

Yet it was notable that the dollar had only gotten a limited lift from the jobs data and was having trouble keeping the gains, with turnover in Asia thinned by holidays in Japan and China.

The euro edged up 0.2% to USD 1.1324, and away from last week’s low at USD 1.1266, while the dollar index dipped 0.2% to 99.857.

The dollar also eased 0.2% to 144.63 yen, and away from Friday’s top around 145.91.

Japanese Finance Minister Katsunobu Kato walked back comments that seemed to suggest Japan might threaten to sell some of its Treasury holdings as part of trade negotiations with the White House, which are due to continue this week.

WAITING ON CHINA

Speculation that the Trump administration was pressuring Asian countries to strengthen their currencies versus the dollar saw the Taiwanese dollar surge more than 5% last Friday.

While the Chinese Commerce Ministry has indicated Beijing was evaluating an offer from Washington to hold talks over Trump’s 145% tariffs, the two sides still seem far apart.

In a TV interview aired on Sunday, President Donald Trump reiterated that he believed China wanted to do a deal, but offered no details or timeline.

Trump did say he would not attempt to remove Federal Reserve Chair Jerome Powell, but also repeated calls for lower interest rates and called the Chair a “stiff”.

The abrupt swings in US policy combined with pressure on the Fed’s independence have shaken investor trust in the dollar, which was still clearly evident in positioning.

Many investors are still wagering on further dollar weakness, with speculative short positions rising further in the latest week, though that also leaves the market vulnerable to a squeeze on any bullish news.

The next hurdle for the dollar will be the ISM survey of services due later on Monday, with a risk a weak reading would revive worries about an economic downturn.

For sterling, the major test this week will be a Bank of England meeting on Thursday where it is widely expected to cut rates a further 25 basis points to 4.25%, and perhaps signal faster easing ahead.

“The reaction in UK gilts and GBP will come from the guidance and whether the door is sufficiently opened for a back-to-back cut at the June meeting, and whether there is the appetite expressed in the statement to ease the bank rate to 3.50% by December,” said Chris Weston, head of research at Pepperstone.

Central banks in Norway and Sweden also meet this week and are expected to keep rates steady.

Down Under, the Australian dollar hardly reacted to Saturday’s election, which saw the Labour party’s Anthony Albanese claim a historic second term as prime minister. The Aussie was steady at USD 0.6441, having hit a five-month high on Friday as a solid US jobs report boosted risk appetite globally.

(Reporting by Wayne Cole; Editing by Shri Navaratnam)