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CURRENCIES : Dollar Seesaws As Traders Wait For Jobs Data To Steer Direction

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03/09/2018 | 12:50pm CEST

By Sara Sjolin, MarketWatch

Yen drops after news of Trump-Kim meeting

The dollar traded in tight ranges on Friday, with investors showing hesitation ahead of the closely watched U.S. jobs report that could set the tone for future Federal Reserve rate rises.

The yen slumped after U.S. President Donald Trump accepted an invitation from North Korean leader Kim Jong Un, seen as easing tensions between the two nations.

What are currencies doing?

The ICE U.S. Dollar Index was up 0.1% at 90.230, set for a 0.3% weekly advance. That would mark a third straight week of gains for the greenback index.

The buck particularly climbed against the yen , buying Yen106.78 compared with Yen106.21 late Thursday in New York. The euro also rose against the yen, climbing to Yen131.30 from Yen130.78 on Thursday.

Against the dollar, the euro fell to $1.2297, down from $1.2313 on Thursday.

The pound bought $1.3818, up slightly from $1.3812 on Thursday.

What is driving the market?

The overall muted dollar action comes as traders look ahead to the nonfarm jobs report, due at 8:30 a.m. Eastern Time. The February data cover the number of new jobs added to the U.S. economy last month, as well as any rise in wages.

The latter is of particular interest to the Fed when it sets interest rates. A sharp rise in salaries would indicate inflation is climbing faster than expected and could put pressure on the central bank to speed up its rate hikes, which would likely boost U.S. yields and then dollar.

Economists polled by MarketWatch expect that 222,000 jobs were added to the economy last month, while wages are forecast to have risen 0.2%.

Meanwhile, the yen declined as news that Trump and Kim Jong Un agreed to meet sparked a rush into riskier assets in Asia. The Japanese currency is considered a safer asset than, for example, stocks or currencies from more volatile countries, and tends to do well when geopolitical tensions flare up. With a thaw in the conflict on the cards, traders are now moving elsewhere.

What are strategists saying?

-- "In case these data come out stronger than anticipated -- particularly on the wages front -- markets are likely to begin pricing in a higher probability that the Fed may deliver four quarter percentage point rate hikes this year, from the three that are already priced in," said Andreas Georgiou, investment analyst at XM, in a note.

The dollar could come under renewed buying pressure in this scenario, as the yields on US bonds will likely surge. A disappointment, on the other hand, would likely dampen inflation concerns, and possibly generate some skepticism as to how many hikes the Fed will deliver this year, thereby weighing on the greenback," Georgiou added.

-- "Our bullish EURJPY call has received unexpected help from US President Trump accepting an offer to meet North Korea leader Kim Jong Un and North Korea offering to suspend nuclear missile testing. 130.45 will now act as strong support," said foreign exchange analysts at Morgan Stanley in a note.

Fed speakers on deck

Chicago Fed President Evans is due to appear on CNBC at 8:45 a.m. Eastern, then on Bloomberg TV at 10:45 a.m. Eastern. He will then give a speech to the Shadow Market Committee in New York at 12:45 p.m. Eastern.

Boston Fed President Eric Rosengren will speak at the Springfield Regional Chamber of Commerce in Springfield, Mass., at 12:40 p.m. Eastern

Among other data, wholesale inventories for January are due at 10 a.m. Eastern.

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