U.S. quarters and U.S. dollar bills are arranged for a photograph in New York, U.S. (Photographer: Daniel Acker/Bloomberg)

Dollar Rebound Hinges on Jobs Report After Trade Tensions Ease

(Bloomberg) -- Dollar bulls appeared to latch onto calming global trade tensions Thursday. The next leg up in the greenback could come from the March U.S. payroll report, which is expected to show the lowest jobless rate in 17 years.

Strength in the wage and employment figures could boost the dollar by increasing the chances that the Federal Reserve hikes rates four times this year, according to Erik Nelson, a currency strategist at Wells Fargo. The market is currently bracing for three rate increases this year.

“That could certainly see the dollar extend some of its recent gains,” Nelson said. At the same time, “there’s plenty of room for dollar downside” should the numbers disappoint.

Dollar Rebound Hinges on Jobs Report After Trade Tensions Ease

The Bloomberg Dollar Spot Index touched a two-week high Thursday, rising 0.4 percent by 5 p.m. New York time. It’s still down about 2.5 percent in 2018, after slumping last year as well.

The Labor Department’s monthly employment report is expected to show 185,000 new jobs in March, slowing from above 300,000 in February, while wage growth is projected to quicken, according to estimates compiled by Bloomberg.

"It hasn’t been about the headline number for probably 12 months now, its been all about that wage number, and that’ll be the piece I think that dictates the market reaction," said Eric Theoret, a currency strategist at Scotiabank.

Greenback gains could be most pronounced against the low yielders, according to Morgan Stanley.

“Should tomorrow’s NFP release for March show unexpectedly strong wage growth beyond our 2.7% y/y forecast, the USD rally would broaden out but also weigh on low-yielding funding currencies,” Morgan Stanley strategists wrote in a report.

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