The euro rose against the dollar and the yen on Monday in thin trading as disappointing US jobs data last week kept alive market expectations of more easing from the Federal Reserve, with analysts eyeing a slew of Fed speakers later in the week. Data on US jobs creation came in sharply lower than expected on Friday. While foreign exchange markets were open, the Good Friday holiday had made for particularly light volume.
When the data were released, "the first thing to hit the market was a sense of pessimism," said Karl Schamotta, senior markets strategist with Western Union Business Solutions. The worse-than-expected figures boosted fears the world's biggest economy might not be recovering quickly enough. "The second impact that it's having is really putting QE3 back on the table in the minds of many traders," he added. With many European markets still closed on Monday - including London, a major currency trading hub - analysts said the dollar was unlikely to hit significant new levels. "The dollar is range bound, and there's no threat of breaking out of those ranges just now," said Michael Woolfolk, senior forex strategist with BNY Mellon in New York.
Traders will instead look to events later in the week for guidance, including several speakers from the US Federal Reserve. Policymakers are likely to keep a steadily dovish tone, Woolfolk said. Speculation about the Fed's plans - such as whether they might kick off another round of quantitative easing, typically a dollar negative - is likely to be a major focus for awhile yet.
"The dollar debate is where the center of FOMC gravity now is with respect to further stimulus and what degree of economic weakness it would take to get stimulus back on the agenda," said Steven Englander, head of G10 strategy at CitiFX, a division of Citigroup in New York. Barclays said it does not believe the weak employment report will be enough to push the Fed into action at its next policy meeting on April 24-25.
The euro traded as high as $1.3133 before more recently trading up 0.11 percent to $1.3108, according to Reuters data. The single currency also rose 0.07 percent to 106.84 yen, turning around earlier losses. Unease about prospects for the euro has abated somewhat as reflected in the options market, with three-month risk reversals in the euro/dollar still biased for euro puts, trading at -2.1 vols on Monday, but improving from -3.5 vols in mid-February.
Euro/yen three-month risk reversals remained biased for euro puts, trading at -3.55 vols, nonetheless down from -3.68 vols in early March. The dollar seesawed against the yen, most recently dipping 0.12 percent to 81.52 yen. The greenback could drop to around 80.00 yen in the next week or two, especially when taking into account current market positioning, said Daisuke Karakama, a market economist for Mizuho Corporate Bank in Tokyo.