Dollar Set for Third Weekly Drop Before FOMC Decision, Jobs Data

(Bloomberg) -- The dollar was on track for its third straight weekly decline, its longest losing streak since early February, as the April trading month wound down and as investors looked ahead to a risk-filled stretch.

Next week includes a policy meeting of the Federal Open Market Committee and the monthly U.S. employment report, with the second round of the French presidential election following on May 7. Trading may be slower than usual Monday with the U.K., China and most of Europe closed for May Day, while the latter part of the week is sure to be impacted by holidays in Japan that will also drain liquidity. In Friday trading, the dollar returned to near its low of the session, unable to sustain gains scored after data showed rising wage and price pressures, despite the economy growing at its slowest pace in three years during the first quarter.

• U.S. 1Q GDP expanded by 0.7%, lagging the 1% median est., weighed by weaker-than-expected personal consumption. At the same time, prices rose more than expected and a separate report showed the Employment Cost Index, the Fed’s preferred measure of wage pressure, rose the most since 2007, sufficient to to bump up the odds of a June rate hike to more than 60%
• The dollar’s defensive tone stems in large part from a weekly gain of more than 1.6% in the euro, which rose this week after the first round of voting in the French presidential race alleviated political concerns while leaving a run-off between centrist Emmanuel Macron and Marine Le Pen, who has said she favors leaving the shared currency. The second round of the presidential vote takes place May 7 and Macron leads by a significant margin in recent polling.
• EUR/USD is trading at ~1.0904 after rising to near its ~1.0950 high for the week in European trading. EUR was bolstered by above-est. euro area CPI data just a day after ECB’s Draghi said that inflation remains too weak to pare back stimulus. The shared currency gained lift from a round of model-driven buying after the data, concentrated in EUR/JPY and EUR/GBP, a trader in London said
• EUR gains were capped by offers near 1.0950 with additional supply in place around 1.0975/80, said traders in Europe familiar with the transactions who asked not to be identified because they are not authorized to speak publicly
• USD/JPY rose to near its weekly high at 111.78, trading to 111.72 after the U.S. GDP report briefly boosted Treasury yields. Offers to sell USD have been positioned near 111.80 all week and the pair also faces technical resistance from the 55-DMA at 111.93
• USD/CAD rose to 1.3697, its highest since February 2016, the loonie undercut as Canadian GDP data also missed estimates and as crude oil futures relinquished early gains to trade little changed near $49.00. Crude is down about 0.7% from a week ago and on track for its second weekly loss.

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