Dollar rises as U.S. jobs report hits schedule

LONDON, Aug. 5 - The dollar gained against a basket of currencies on Thursday after hawkish comments from the U.S. Federal Reserve led markets to move forward with the likely timing of a policy tightening.

Sterling ticked slightly higher after the Bank of England kept the size of its bond-buying programme unchanged and held its benchmark interest rate at a historic low of 0.1%.

The Bank said notably that it would start reducing its stock of bonds when its policy rate reaches 0.5% by actively selling down holdings when the rate reaches at least 1% and that it would not reinvesting proceeds.

'While markets initially took the news of the 7 - 1 split as dovish, the undertones of today's policy statement and monetary policy report are much more optimistic than first expected, said Simon Harvey, senior FX analyst at Monex Europe.

The Euro surged 0.35% to $1.1854, after recovering from a top of $1.1899 overnight. The dollar topped also 109,75 yen, although the dollar began to recover some lost ground.

On Wednesday, Fed vice chairman Richard Clarida said conditions for an interest rate hike could be met in late 2022, setting the stage for a move in early 2023.

He and three other Fed members also signalled a move to taper bond buying later this year or early next depending on the labour market in the next few months.

Clarida's comments on Friday allowed the dollar to stay well-supported with the payrolls numbers, said ING FX strategists Francesco Pesole and Chris Turner.

For today, the dollar could find some stability amid a fairly quiet U.S. calendar of events.

Predicting the jobs report with confidence remains tricky as the spread of the Delta variant and labour bottlenecks roil the market.

The median forecast for payrolls is 870,000 and the range of estimates stretches from 350,000 to 1.6 million

Mixed data on Wednesday added to the uncertainty as a surprisingly weak ADP report on U.S. services clashed with the strongest reading yet for private businesses.

Clarida's comments led investors to price in slightly higher chances of a hike in early 2022 and to a flattening of the Treasury yield curve as short-term yields rose.

Such a move would likely precede any tightening by the European Central Bank, which is battling to get inflation near its target.

The Reserve Bank of New Zealand is likely to hike rates at its next policy meeting on Aug. 18, making it the first in developing world to move since the pandemic hit.

The super-strong jobs report on Wednesday added to the case for tightening in New Zealand and sent kiwi to a one-month peak of $0.7088 overnight before stabilizing at $0.7041.

The NZ economy has almost closed its output gap and will risk overheating if stimulus is not reduced, said Imre Speizer's head of Westpac International Market Strategy. Markets are flirting with some chance of 50 bps rate hike and fully pricing a 25 bps rate hike.

He recommended buying the Kiwi with any pullback to $0.7005, for a target of $0.7300.