Dollar hits one-month high vs yen on Fed rate hike bets
The dollar rose to a one-month high against the yen on Wednesday as investors reversed the bets they had made on speculation that the U.S. Federal Reserve would not hike interest rates anytime soon.
That reversal saw the dollar, which was at around 100.500 yen at the start of the week, extend an overnight rally as far as 103.230 yen JPY=, its highest since July 29.
Dogged by rate hike uncertainty, the dollar dropped to as low as 99.550 yen in mid-August and came within sight of 99.000 yen -- a 2-1/2-year low struck in June against the safe-haven Japanese currency after the Brexit vote.
The euro EUR= was little changed at $1.1153, hovering near a three-week low of $1.1133 plumbed on Tuesday. The common currency was poised to lose 0.2 percent on the month.
This is the number everyone is watching Wednesday
ADP's private sector payroll report could be more important than usual, since the Fed opened the door to hiking rates in September.
Friday's August government employment report is the big chunk of data markets are awaiting, but ADP is a kind of warm-up to that number.
"It's all employment. That's the data people are going to be looking at to see what it means for the Fed," said Joseph LaVorgna, chief economist at Deutsche Bank. LaVorgna said there is too much focus on Friday's employment report. "Unfortunately, the Fed has set itself up with this one number. They've made this one number more important than it should be."
El-Erian says there could be 80 pct chance of Sept hike with strong jobs report
Mohamed El-Erian, chief economic adviser at Allianz said he currently sees a 60 percent chance of the Federal Reserve raising the federal funds rate at its September meeting, but those odds could rise as high as 80 percent.
"What makes that probability go a lot higher a Friday report that has three things: job creation in excess of 180,000, wage growth going up and no significant move in the participation rate that pushes the unemployment rate up," El-Erian said in an interview on CNBC's "Fast Money" on Tuesday.
If Friday's jobs report meets all three of those conditions, "the case for not hiking would weaken tremendously," El-Erian said.
"It'd be very hard for them not to hike if jobs, the participation rate and wages are all saying you got to go forward because we're near full employment," he explained. Even a jobs report that met two of the three conditions would probably push the Fed to raise interest rates, according to El-Erian.
What would concern him is if the report only meets one of the three conditions El-Erian listed. He said that the Federal Reserve "should be hiking at this point ... because the domestic economy warrants it and because there's a collateral damage of running a modern economy at too low interest rates for too long."
The market doesn't see the same odds as El-Erian, as it currently prices in just a 24 percent chance of a rate hike in September and a 55.9 percent chance of one in December, according to traders tracked by the CME Group. El-Erian said, however, that current chances of a September rate hike sit at 60 percent because of international economic conditions, not domestic ones.
"While domestic conditions are flashing green, international conditions are flashing yellow. So it is the international picture that is holding back the Fed," El-Erian said.
Oil dripped Today
Crude oil futures dipped on Wednesday as the U.S. dollar held around three-week highs and industry stocks data indicated a build in U.S. crude inventories.
International Brent crude oil futures LCOc1 were trading at $48.32 per barrel at 0608 GMT (0208 ET), down 5 cents from their previous close.
U.S. West Texas Intermediate (WTI) crude futures were down 7 cents at $46.28 a barrel.
Reference: CNBC,Reuters
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