Dollar Gains as Fed Stands Pat, Notes Labor-Market Strength

(Bloomberg) -- The dollar rose to a session high after Federal Reserve officials left rates on hold and said that risks to the economy remain roughly balanced even as labor-market strength continues and a gradual pace of rate hikes is still warranted.

Dollar gains were strongest against the Australian and New Zealand dollars while dollar-yen rose to its highest in six weeks as Treasury yields climbed in choppy trading after the Fed announced its decision. The Fed waved off a slowdown in first-quarter growth as “transitory,” leaving the door open for a possible rate hike in June. With the Fed guidance in line with expectations, traders shifted focus to the Friday release of the April employment report.

• Earlier in the day, the dollar was little impacted by a report from the ADP employment institute that is seen as a barometer for the jobs report, though the greenback posted slight gains after the ISM non-manufacturing index rose more than expected.
• The ISM index rose to 57.5, besting expectations for a gain to 55.8, while ADP said that April private payrolls in the U.S. increased by 177k vs est. 175k. ADP revised its March reading to 255k from an initial estimate of 263k, a still strong result that was not reflected in the government labor report released last month and which may suggest an increased risk of an upward revision to the March non-farm payrolls total. Traders typically use the ADP report to fine tune forecasts for the NFP given a usually tight correlation, though that link unexpectedly weakened last month
• USD/JPY rose to a fresh high at 112.66 in afternoon trading, extending gains from earlier in the day. Trading flows have been modest on the day with Japanese markets closed for holidays for the rest of the week, keeping order books and participation light, said traders who asked not to be identified because they are not authorized to speak publicly. USD offers are in place in the 112.80/90 zone, traders in London said
• From a technical perspective, the USD has broken resistance from the cloud bottom on the Ichimoku chart, signaling potential gains toward the 112.87 cloud top where those offers are positioned
• EUR/USD traded to a fresh low at 1.0893 after bids at 1.0900 that cushioned the pair earlier were filled and as traders look ahead to the second round of French voting in the presidential race this weekend. Candidates Emmanuel Macron and Marine Le Pen are participating in a televised debate Wednesday night that may shift the balance in polls that continue to show centrist Macron with a significant lead
• EUR may find additional bids at 1.0885 and 1.0850, while sellers lurk near 1.0945/50, traders said

To contact the reporter on this story: Dennis Pettit in New York at dpettit5@bloomberg.net.

To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Greg Chang, Mark Tannenbaum