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Dollar heads for weekly decline as data and trade tensions weigh

Fri Dec 06 2019


The United State (US) dollar nursed a week of losses on Friday, hit by nervousness on trade and mixed signals about the US economy, while the British pound stood tall as bets firmed that Prime Minister Boris Johnson can win a commanding electoral victory.


The safe havens of the Japanese yen and Swiss franc were in demand as a hedge against Sino-US trade talks collapsing, and as investors fretted that US jobs figures due later in the day may fail to deliver an expected rebound.


“Markets are in a highly fragile condition at the moment,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.


“So there is a greater potential for an exaggerated move if we see a big divergence from expectations on non-farm payrolls - but the risk is in both directions, particularly with the lack of trade news.”


The euro held on to overnight gains against the greenback to buy $1.1104, having climbed 0.8 per cent this week. The yen has added 0.9 per cent on the dollar this week and was steady at 108.72 yen per dollar on Friday.


Against a basket of currencies the dollar has dropped every day this week for a cumulative loss of almost 1 per cent.


The best gains have been won by the soaring kiwi and British pound. The kiwi sat just below a four-month high touched on Thursday at $0.6541, having gained 1.8 per cent this week as expectations for deep monetary easing have ebbed.


Sterling climbed to a 2-1/2 year high of 84.28 pence against the euro overnight - holding near there on Friday - and has advanced 1.7 per cent against the dollar this week, last trading at $1.3158.


Opinion polls suggest the ruling Conservatives will win an outright majority in the Dec. 12 election, removing some of the uncertainty around Britain's exit from the European Union (EU) that has weighed on the currency for years. Cable has rallied 10 per cent since September lows.


“There's still a bit of nervousness about being too convinced. But nevertheless cable seems to think that we do get a clear majority for Boris Johnson,” said Jim Leaviss, head of fixed income at fund manager M&G Investments.


“That means that we leave the EU on the 31st of January. I think the options market was pricing in another 7 per cent upside on a Conservative victory, and I think that's justified fundamentally,” he added.


On the trade front, US President Donald Trump remained upbeat overnight and said talks are “moving right along”.


Worries stem from a lack of similar enthusiasm from the Chinese side, after Chinese officials reiterated their stance that some US tariffs must be rolled back for a deal.


The focus on US non-farm payrolls, due at 1330 GMT, comes after dismal data through the week that showed weak private payrolls, soft services activity and a shrinking manufacturing sector.


A Reuters poll shows a forecast of 180,000 jobs being added in November. “Below 150,000 or above 210,000 we could see a significant market reaction,” said CMC Markets' McCarthy.


Source: Reuters

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