* Euro, GBP belted after central banks surprise with
* Leaves Fed alone with tapering plans, to benefit of USD
* US payrolls still to come, could spoil the party
By Wayne Cole and Hideyuki Sano
SYDNEY/TOKYO, July 5 The U.S. dollar rallied
broadly on Friday after the European Central Bank and the Bank
of England blindsided markets with decidedly dovish policy
guidance, leaving the U.S. Federal Reserve as the only major
central bank with any inclination to rein back stimulus.
The dollar could extend its gains if the upcoming U.S.
employment figures show improvements in line with the Fed's
"At the moment, I see few reasons to sell the dollar given
relative strength in the U.S. economy. Even if today's numbers
are weak, that is unlikely to lead to a long downtrend in the
dollar," said a trader at a Japanese trading house.
The euro fetched $1.2903, slightly down on the day
after having fallen 0.9 percent on Thursday to hit a five-week
low of $1.2883 at one stage.
The British pound hit a fresh five-week low of $1.5026
in Asia on Friday, stripped of gains made earlier in
the week and having sunken 1.3 percent on Thursday.
The dollar index made a swift turnaround, climbing from to
as high as 83.906 , the highest since late May.
The first shock came when the BoE under new governor Mark
Carney broke with tradition and issued a statement that the
market's pricing of future rate rises was unwarranted.
ECB chief Mario Draghi followed up by ending the bank's
taboo on forward guidance, saying low rates would remain for an
extended period of time.
In his media conference after the policy meeting, Draghi
drove home the dovish message by revealing there had been
extensive discussion about cutting rates.
European stocks bounded higher while bond yields fell. The
premium paid by US 10-year Treasury yields over German Bunds
widened to its highest since April 2010.
"The general message is that the possibility of further
monetary stimulus in the near term is very high," said Martin
McMahon, European economist for the Commonwealth Bank of
"That easing would probably come in the form of a refi rate
cut to 0.25 percent, with a realistic prospect of a negative
deposit rate," he added. "Further action at the August 1st ECB
meeting may be a little early. But there is a strong chance of
another rate cut after the summer break."
All of which is in stark contrast to the Fed, which plans to
start tapering its stimulus before year-end should the U.S.
economic recovery proceed as hoped.
The possible timing of that tapering will, however, depend
on the flow of data and there are few more important than the
payrolls report due later on Friday.
Forecasts favour a rise of 165,000 in employment, with the
jobless rate ticking down to 7.5 percent from 7.6 percent in
May, edging closer to "the vicinity of 7 percent", which Fed
Chairman Ben Bernanke has signalled as a level to stop bond
Many traders expect the Fed to start reducing its stimulus
in September and to end it all together within a year.
However, dealers are well aware that the series has a
tendency to disappoint in June. Over the past sixteen years the
report has come in under expectations 75 percent of the time
with an average miss of 70,000. In addition, four of the last
five June releases have fallen short of forecasts.
The U.S. dollar also gained 0.3 percent to 100.38 yen
, but faces stiff resistance in the 100.90/101.00 area.