Dollar wobbles ahead of U.S. jobs data

The dollar fell overnight and stocks rallied after mixed U.S. economic data

The dollar wobbled toward its first steady week in three on Friday as traders looked to U.S. jobs data later in the day for clues as to how far and fast the Federal Reserve might raise interest rates.

Markets have locked in consecutive 50-basis-point Fed hikes in June and July but the dollar has been pushed around this week by uncertainty about what happens after that.

The dollar rose through the early part of the week on nerves that record high inflation in Europe was a harbinger of sharply higher rates everywhere. But it fell overnight and stocks rallied as mixed U.S. economic data muddied the outlook.

The dollar lost about 0.9% on the euro on Thursday, falling to $1.0750. It fell further to $1.0760 early in an Asia session thinned by holidays in China and Hong Kong. A holiday in Britain is also likely to thin London trade.

In light activity the dollar lost about 0.5% on the offshore yuan to hit 6.6170.

Equity markets are pushing higher, said Chris Weston, head of research at brokerage Pepperstone in Melbourne. I think the equity market is effectively the horse and the dollar in this case is the cart.

The S&P 500 index rose 1.8% on Thursday.

The risk-sensitive Australian and New Zealand dollars each rose more than 1% overnight, tracking gains in stocks.

Having broken resistance at $0.72, the Aussie edged a further 0.1% higher to a six-week high of $0.7280 on Friday.

The dollar index was 0.1% lower at 101.660 in early trade on Friday and is flat for the week - pausing a decline, following two consecutive weekly losses of more than 1%.

The yen has been kept under pressure by super-low interest rates in Japan and little chance of them following the rest of the world higher.

The Japanese currency was steady at 129.80 per dollar on Friday and has lost 2% on the dollar this week.

Overnight data showed a softer-than-expected rise in private hiring in the United States along with a surprise drop in the number of filings for unemployment benefits. U.S. non-farm payrolls data is due later on Friday and although markets and central banks are currently focused on inflation, the labour market will guide wages expectations and sentiment about the strength of the broader economy.

For equities right now, anything that might be viewed as capping the Fed’s tightening could be viewed as supportive, said ING economist Rob Carnell, adding that Treasuries and currency markets would then likely take their cues from stocks.