NEW YORK: Investors trimmed US dollar holdings on Friday after a solid May US jobs report nearly matched consensus and left little chance the US Federal Reserve will deviate from its course of removing monetary accommodation from a strengthening economy.
This follows Thursday's long-promised steps by the European Central Bank to increased the level of monetary stimulus into the euro zone economy, which over time puts pressure on investors to sell euros and buy higher yielding currencies.
However, for the time being currencies are hewing to tight trading ranges after the two events.
"I think it will take a few days for the market to digest what has come out from the ECB and the jobs report, and therefore we could see in the interim some caution and no one wanting to take large bets in any one direction," said Martin Schwerdtfeger, currency strategist at TD Securities in Toronto.
The euro gyrated after the data, initially selling off but then catapulting to a fresh, but brief, two-week high of $1.3677. It has settled back to $1.3658, unchanged on the day.
The data, which showed the US economy added 217,000 non-farm jobs, versus the Reuters consensus forecast of 218,000, brought employment to its pre-recession levels and indicates an economy that has snapped back from a harsh winter.
It may take until next week for the dust to settle on the ECB's moves, making good on hints that it would take strong action to both support the economy and, in passing, halt gains for the euro which have driven inflation below targets.
A four percent rise in the euro between January and the start of May has been one of this year's big surprises on financial markets, shaking out investors who had bet on the dollar strengthening across the board.
The conclusion of many from Thursday's action is that the ECB on its own will struggle to weaken the single currency.
"It is still all about the Fed," said one London-based dealer. "Until we get more certainty about the prospect of stronger growth and higher interest rates in the United States, there are too many other factors in the euro's favour."
Ahead of the US data, London dealers said there were options to buy over 3 billion euros set at $1.3600, naturally dragging the currency towards that number given the lower volumes of trade. The consensus on Friday was that without any stronger impulse from the dollar side, it would take the sort of outright government bond-buying implemented by the US Federal Reserve to undermine the euro.
Trading ranges were narrow elsewhere. The dollar was off just 0.08 percent at 102.30 yen and the euro was off 0.14 percent at 139.70 yen.
The dollar index initially hit a 1-1/2 week low but then trimmed those losses.
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