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Dollar rebound holds as yields steady ahead of jobs data

The dollar held gains on Wednesday after a quick recovery from an earlier fall as markets chose to focus on a suggestion from a top U.S. Federal Reserve official that the central bank may reduce support for the improving economy more quickly than widely thought.

The bullish comments on the U.S. economy, by Fed Vice Chair Richard Clarida, triggered a rebound in U.S. Treasury yields and turned market attention away from the release two hours earlier of an unexpectedly weak private employment report that had driven the dollar down.

The dollar swung from being down 0.3% for the day to up 0.3% on the opposing clues on whether the United States will see strong economic growth and higher interest rates or a serious drag from the coronavirus pandemic.

The ADP National Employment Report was seen as possibly foreshadowing softness in July jobs data due on Friday. But there were doubts about its value as a predictor and another report showed U.S. service industry activity jumping to a record high in July.

The currency markets have been expecting Friday’s non-farm payrolls report to be the next big catalyst for exchange rates, followed by comments expected at a symposium of central bankers at the end of this month in Jackson Hole, Wyoming.

U.S. Treasury yields settled mostly higher on Wednesday after a top Federal Reserve official's comments on interest rates shifted traders' focus away from disappointing payroll data.

The benchmark 10-year yield was up 1.1 basis points at 1.1854% in afternoon trading. It reached a high of 1.215% in the late morning after falling to 1.127% early in the session, its lowest level since February.

In the afternoon in New York, the dollar index against major currencies was up 0.2% to 92.246.

The Japanese yen, often seen as a competing safe haven, was a big beneficiary of the dollar’s initial fall on the ADP report and gained to 108.77 per dollar, but couldn’t hold its break below 109. The dollar was last trading at 109.45 yen, up 0.4%.

The euro and British pound also swung against the greenback. The euro was last trading at $1.1840, off 0.2% for the day. Sterling was down 0.2% to $1.3889.