Dollar dips as rate hike fears subside, Fed minutes awaited

LONDON (July 5) - The dollar dipped against a basket of major currencies on Monday, after hitting a speed bump when last week's mixed bag of U.S. labour data allayed investor fears about a faster end to monetary stimulus.

While the headline June job creation figure beat forecasts, unemployment ticked higher and workforce participation didn't budge - suggesting positive progress, but space for the Federal Reserve to wait before tapering asset buying or hiking rates.

Bonds rallied, stocks rose and the dollar slipped in the wake of the data - dropping most against the risk-sensitive Australian and New Zealand dollars and the rates-sensitive yen.

While attempting a bounce in Asian and early European trading, by midday in London the greenback had fallen back to its lowest levels since Wednesday .

It gained about 0.2% against the kiwi, which sat at $0.7022, traded 0.2% lower at 110.82 yen and fell 0.1% to $1.1876 per euro.

U.S. markets are closed on Monday for the Independence Day holiday.

"Friday's NFP jobs report gave something for everyone in terms of an above-consensus NFP gain, but also an above-consensus unemployment rate," strategists at ING said in a note to clients.

"U.S. interest rate markets slightly softened their stance on early Fed tightening and the dollar ended slightly softer. Today's U.S. public holiday suggests trading will be quiet today, although the Fed story will very much re-emerge on Wednesday evening when investors pore through the minutes of the pivotal June 16th FOMC (Federal Open Markets Committee) meeting."

The dollar index was 0.2% lower at 92.154, falling below Friday's levels. But with a 2% rise in the three weeks since the Fed surprised investors with projected hikes in 2023, analysts think the dollar has room to rise a bit further.

"Since the hawkish tilt of the Fed in June, the dollar has been increasingly sensitive to the strength of the domestic data whilst some DM and EM peers still battle COVID outbreaks," analysts at Maybank in Singapore said in a research note.

"As such, this dollar strength can linger a while longer and a sanguine risk climate may not be entirely detrimental for the greenback at this time."

Elsewhere, sterling was 0.2% higher at $1.3860 and emerging market currencies in Asia made small gains to catch up with the dollar's Friday drop.

Reuters