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NEW YORK, Oct 7 (Reuters) – The US dollar strengthened against major currencies on Friday after US data showing employers hired more workers than expected in September, suggesting the Federal Reserve will likely stick to its aggressive tightening policy for now.

The dollar reversed early losses against the Japanese yen and was last up 0.2% at 145.42 yen. The dollar hit a 24-year peak of 145.90 yen last month, which had prompted an intervention by Japanese authorities to shore up the fragile yen.

The euro fell against the dollar, extending losses after the US jobs report, and was last down 0.6% at USD 0.9735.

“Any sign of US economic weakness will weigh heavily on the dollar, but it certainly didn’t come with nonfarm payrolls,” said Adam Button, chief currency analyst at ForexLive in Toronto.

Nonfarm payrolls increased by 263,000 jobs last month, the Labor Department said in its closely watched employment report. Data for August was unrevised to show 315,000 jobs added as previously reported. Economists polled by Reuters had forecast 250,000 job gains, with estimates ranging from as low as 127,000 to as high as 375,000.

Overnight, a number of Fed officials reinforced the view that the central bank is nowhere near finished with raising rates as it seeks to tame inflation, and interest rates are expected to go up further.

US inflation data, due next week, will be watched closely as well and could prove influential in setting investors’ expectations for the Fed, according to strategists.

The US central bank, in an effort to tame inflation, has hiked its policy rate from near-zero at the beginning of this year to the current range of 3.00% to 3.25%, and last month signaled more large increases were on the way this year.

A US dollar index which measures the greenback against a basket of currencies was last up 0.6% and hit its highest in a week. The index is up about 18% for the year so far.

Sterling was down 0.9% at USD 1.1060, having fallen 1.4% overnight. It jumped earlier this week, after the British government reversed a planned cut to the highest rate of income tax.

The dollar also gained against China’s offshore yuan Friday, and was last up 0.7% at 7.1313.

(Additional reporting by Amanda Cooper in London and Rae Wee in Singapore; Editing by Shri Navaratnam, Ana Nicolaci da Costa, William Maclean, Jonathan Oatis and Cynthia Osterman)

 

Aug 10 (Reuters) – The dollar index rose on Friday after firm US employment data sent Fed rate hike expectations back toward September’s highs, but the US currency might wait for next Thursday’s CPI to confirm that view before making a run at September’s 20-year 114.78 peak.

The index surpassed the 50% Fibo of its 114.78-110.05 Sept. 28 to Oct. 4 at 112.41, a retreat triggered by BoE intervention to arrest financial market distress that had been boosting the haven dollar.

The 61.8% Fibo at 112.97 and Sept. 29 high at 113.79 are the next hurdles. Friday’s 111.94 low by Wednesday’s initial recovery high and the cleared 38.2% Fibo at 111.75/85 is support.

EUR/USD, the index’s majority component, broke its analogous 50% Fibo support at 0.9764 after failed attempts to retake parity this week as German economic data deteriorates nL8N3181GL and EU leaders squabble over energy.

Two-year bund-Treasury yield spreads fell with the ECB seen further behind fighting inflation than the Fed and now dealing with an OPEC+ oil output cut. But big ECB rate hikes are seen as more dangerous for wobbling euro zone economies.

(Randolph Donney is a Reuters market analyst. The views expressed are his own.)

 

NEW YORK, Oct 7 (Reuters) – A towering rally in the US dollar is expected to hit third-quarter corporate earnings, potentially presenting another obstacle to stocks in a year that has experienced an already-painful market decline.

The dollar index, which measures the greenback’s performance against a basket of peers, traded an average of 16.7% higher in the quarter that ended Sept. 30 than in the same period a year ago, helped by a hawkish Federal Reserve and turmoil in global financial markets that boosted the dollar’s safe-haven appeal.

That means a wide range of companies will likely cite the dollar’s rise as a headwind to their bottom lines as corporate earnings season kicks into gear this month. A stronger buck makes US exporters’ products less competitive abroad while hurting US multinationals that need to exchange their earnings into dollars.

The stronger dollar is “one of the contributors to the notion that earnings expectations for the S&P 500 need to come down more,” said Erik Knutzen, chief investment officer of Neuberger Berman’s multi-asset class portfolios. “It is one of the factors that leads us to be more cautious on equities.”

Ohsung Kwon, US equity strategist at Bank of America Securities, expects the dollar’s strength to cut between 5% and 6% of earnings for S&P 500 companies, compared to a 2% hit last quarter. The S&P 500’s foreign exposure stands at about 30%, with the technology and materials sectors most vulnerable, BofA estimates.

Earnings estimates have already fallen this year, as analysts account for a darkening US economic outlook amid rising inflation and tightening financial conditions.

Analysts expect third quarter S&P 500 earnings – which will start rolling in as the season kicks off next week – to have increased by 4.5% from a year ago. That is down from the 11.1% rise they were expecting at the start of July, according to IBES data from Refinitiv as of Sept. 30.

A bigger than expected earnings decline could further complicate the picture for US stocks. The S&P 500 is down about 21% this year, with few investors expecting the volatility to end until there are clear signs the Fed is getting the upper hand in its battle against inflation.

“Dollar strength continues to serve as a headwind for equities … and our FX strategists do not see the strong dollar going away any time soon,” analysts at Morgan Stanley wrote.

The stronger dollar has already claimed its share of victims this year. Nike, which receives more than half its revenue from outside North America, last month doubled its estimates for the currency’s headwind on earnings to USD 4 billion, sending its shares down 13% on Sept. 30.

Other companies that have recently warned of the dollar’s impact include IBM Corp., DuPont de Nemours and Procter & Gamble Co.

While companies take steps to guard their profits from big exchange rate moves by using various hedging strategies, including those that employ forwards and options, they typically hedge only about 50% to 75% of their foreign exchange exposure, said John Doyle, vice president of dealing and trading at Monex USA.

To be sure, there is an upside to the greenback’s strength for US stocks, as companies that rely on importing goods will find their buying power increased.

At the same time, expectations of a rising buck make dollar-denominated assets more attractive to foreign investors by assuaging fears of a possible foreign exchange hit when they convert assets back into their home currency.

“It allows (foreign) investors to invest in what they think is a high growth area without worrying too much about the currency,” said Colin Graham, head of multi-asset strategies at Robeco Institutional Asset Management.

Signs of a dollar peak, however, could push investors into currencies they expect to rebound as the dollar falls, analysts said.

That peak is unlikely to come in the near future, according to analysts polled Reuters.

Though the dollar index is down about 2% from its recent high, 85% of analysts polled by Reuters said the dollar’s broad strength against a basket of currencies has not yet reached an inflection point.

Similarly, analysts at UBS Global Wealth Management believe a hawkish Fed, a comparatively strong US economy and weak growth in Europe will keep the dollar elevated for the time being.

“We think it’s too early to call a peak in Fed hawkishness or a top in the greenback,” they wrote in a recent report.

(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Josie Kao)