Dollar Traders See Jobs Data as Obstacle After Post-Brexit Fade

(Bloomberg) -- Currency traders will be looking at next week's jobs report for clues on the dollar's direction after the greenback had its worst week in a month.

A gauge of the U.S. currency erased gains after the U.K.'s Brexit decision sent shock waves through financial markets and diminished the chances of a Federal Reserve interest-rate increase any time soon. As political paralysis in Britain looms over Europe, investors will turn their attention to the U.S., where Fed Vice Chairman Stanley Fischer said policy makers will monitor international headwinds and the pace of the economy to determine the timing of interest-rate increases.

“Because the Fed is on hold for a very long time, the strong dollar, risk-off trade is fading,” said Jonathan Lewis, chief investment officer of Fiera Capital Corp.'s U.S. unit, who manages $15 billion.

The U.S. currency surged on June 24 and 27 as investors sought refuge assets in the wake of Britain's shock decision to the leave the European Union before giving back those gains. The greenback has upended analysts' forecasts this year, weakening against the euro and yen on concern that global growth would impair the Fed's ability to boost borrowing costs.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, slid 0.4 percent. The greenback fell 0.2 percent against the euro to $1.1136 in the five days to Friday and rose 0.3 percent to 102.52 yen.

Hedge funds and money managers reduced net-bullish wagers on the dollar, according to the Commodity Futures Trading Commission. Bets that the currency would rise outnumbered bearish positions by 96,184 contracts in the week to Tuesday, down from 130,989 a week earlier, CFTC data showed.

The U.S. employment report on July 8 is forecast to show nonfarm payrolls rose 175,000 last month, following a lower-than-projected increase of 38,000 in May that sent the dollar plunging by the most in six months. Minutes from the Fed's last policy-setting meeting will be released on July 6.

“Disappointing U.S. data could fuel fears about an imminent slowdown and risk aversion could rear its ugly head again,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA's corporate and investment-bank unit in London. “Nonfarm payrolls and Fed minutes will be key for risk sentiment, and the U.S. dollar outlook.”

Traders are pricing in a 12 percent chance of the Fed raising rates this year, futures data show. Fed Bank of New York President William C. Dudley and Governor Daniel Tarullo are scheduled to speak next week, and market participants will parse their comments for any signals about the Fed's path.

“I would pay more attention to Fed speakers next week and what are they saying about Brexit because that, to me, is going to matter more in terms of the July meeting and the September meeting” than the minutes, said Paresh Upadhyaya, director of currency strategy at Pioneer Investments in Boston, which oversees about $236 billion.

To contact the reporter on this story: Lananh Nguyen in New York at lnguyen35@bloomberg.net. To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Paul Cox, Kenneth Pringle