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The euro dipped a quarter of a per cent on Monday as investors took profits after a recent rally though markets remain optimistic about the outlook for the single currency after lacklustre US jobs data.
With foreign exchange markets extending the sell-dollar theme from late last year and Asian stocks creeping towards all-time peaks, the euro's dip was taken as an opportunity to buy the single currency by some investors.
“The overall trend is minutely supportive for the US dollar as we are seeing a global recovery led by China and Europe and there is a lot of cash sitting on the sidelines waiting to buy European assets,” said Peter Chatwell, head of European rates strategy at Mizuho International in London.
US non-farm payrolls data
Friday's headline US non-farm payrolls increased by 148,000 jobs last month, against broader expectations of an increase of 190,000 jobs though an unchanged unemployment rate held stable at a decade low of 4.1 per cent pointed to a solid jobs market. The lacklustre numbers was vindicated by positioning data which showed net dollar positions against a broader basket of currencies, including some emerging market currencies, not far away from a 5-year low hit in October.
The euro slipped 0.3 per cent to $1.19940 after rising more than 2 per cent over the last three months. It wasn't far away from a four-month high of $1.2092 hit in September.
“The recent trend of dollar-selling is taking a bit of a pause,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, adding that the dollar drew some support after US Treasury yields nudged higher on Friday.
The US currency had begun 2018 on the defensive, after the dollar index fell about 9.9 per cent in 2017, its weakest performance since 2003.
Monetary policy tightening
A synchronised global recovery has prompted other countries' central banks to start moving towards tighter monetary policy in recent months, helping bolster their currencies. After the US jobs data, traders of US short-term interest rate futures continued to bet the Fed would raise interest rates two times this year, including a probable increase in March.
Comments by some Fed officials on Friday and over the weekend suggested the US central bank remained on track to raise interest rates in 2018. San Francisco Fed President John Williams told Reuters in an interview on Saturday that the Fed should raise interest rates three times this year given the already strong economy will get a boost from tax cuts, and can tighten more or less aggressively if needed.
Against a broad-basket of currencies, the dollar edged 0.3 percent higher on the day.
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