Dollar riding high on hike bets ahead of payrolls report

A U.S. one dollar banknote is seen in this illustration
A U.S. one dollar banknote is seen in this illustration taken November 23, 2021. REUTERS/Murad Sezer/Illustration/File Photo

SYDNEY, Jan 7 (Reuters) - The dollar is set to notch up a fifth consecutive weekly gain on the Japanese yen and looks poised to extend the rally if U.S. labour data due later on Friday reinforces the case for early Federal Reserve interest rate hikes.

The greenback hit a five-year peak on the yen at 116.35 on Tuesday but has fallen back somewhat to trade at 115.93 yen in Asia on Friday.

It is up about 0.7% on the yen this week and about 2.7% over five weeks. The gains have tracked firming expectations that the Fed could raise rates as soon as March and several times this year - driving a bond market selloff and a rise in yields.

The yen has been the most prominent loser among major currencies, as traders reckon the Bank of Japan is likely to lag global interest rate hikes, but the move in yields has also helped the dollar broadly.

It is eyeing its best week in more than a month against the Australian and New Zealand dollars.

The Aussie fell through support around $0.7184 on Thursday and last bought $0.7171. It has lost 1.3% for the week so far. The kiwi was near a two-week low at $0.6747 on Friday and down 1.4% for the first trading week of 2022.

The greenback is also up about 0.7% for the week to $1.1293 per euro . It surged to a six-week high on the offshore yuan at 6.3975 on Thursday and stands at a 17-month high on the South Korean won .

Overnight St. Louis Fed President James Bullard said the Fed could also start reducing its balance sheet soon after it begins hiking, and even dovish San Francisco Fed President Mary Daly said the balance sheet reduction would follow normalising rates. read more

Partial labour data on Wednesday beat market expectations by miles and a strong non-farm payrolls figure later on Friday, especially if it is bigger than the forecast 400,000 jobs added last month, could bolster the case for sooner hikes.

"If it is a very strong number the Fed has more fuel to maintain the hawkish rhetoric, which further supports the March hike probability," analysts at NatWest said in a note to clients, adding the downside is probably limited.

Elsewhere sterling has held its own this week as traders figure the Bank of England will also soon to begin its own hiking path. It last bought $1.3533, not far from Tuesday's two-month high of $1.3599.

Rising Omicron cases are also causing jitters and in emerging markets the Thai baht fell 1% against the dollar on Thursday after the country raised its virus alert level, foreshadowing tighter restrictions.


Currency bid prices at 0102 GMT

All spots

Tokyo spots

Europe spots


Tokyo Forex market info from BOJ

Reporting by Tom Westbrook; Editing by Edwina Gibbs

Our Standards: The Thomson Reuters Trust Principles.