Dollar edges towards 10-week high ahead of US jobs data

The dollar edged toward a 10-week high on Friday before monthly US jobs data that investors hope will shed light on how much longer the Fed's aggressive rate-hiking cycle will continue.

The greenback is outperforming other major currencies as the US economy continues to grows strongly while recent data in other large economies, including the euro zone, has come in below expectations.

Investors are watching for signs of increasing US inflation as companies, including Amazon, raise minimum wages. Friday's non-farm payrolls release for September will give new indications of wage growth and labour market strength.

The dollar index, which measures its performance against a basket of six currencies, was 0.1 percent higher on the day at 95.804.

Private payrolls data came in stronger than forecast on Thursday, pushing the yield on the benchmark 10-year US Treasury note to its highest levels since May 2011.

“We have downplayed the relevance of the US labour market report for the dollar ... but the data might become more significant again now there is debate over how much longer the rate hike cycle will continue,” said Antje Praefcke, a currency strategist at Commerzbank in Frankfurt.

The US central bank foresees another interest rate hike in December, three more next year, and one increase in 2020.

Fed Chairman Jerome Powell had on Wednesday talked up the US economy, saying that the United States is on the verge of a ”historically rare” era of ultra-low unemployment and tame prices. That spooked investors and caused US Treasury yields and the euro/dollar currency pair to breach key technical levels.

Aussie falls to multi-year low

The Australian dollar, often viewed as a barometer of risk appetite, slipped 0.3 per cent to $0.7054, a 32-month low, as US yield spreads continued to widen, pressuring stock markets and risk appetite around the world.

The Aussie, extending losses into a fourth straight session, has now fallen 2.1 per cent this month. The euro edged down 0.1 per cent to $1.1497 after brushing a six-week low of $1.1463 during Thursday's session.

The dollar will continue to strengthen against the euro as well as the yen, with the common currency likely slipping back below the psychologically-significant $1.15 handle, said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

The euro is down about 0.8 per cent against the dollar this month. Sterling rose to a 3-month high versus the euro on Friday after European Union Brexit negotiators said that a divorce deal with Britain was “very close”.

The pound rose to 88.14 pence, its highest since 9 July, on the report which cited two diplomatic sources.