US Dollar struggles on post-payrolls angst

Frankfurt (Jun 9)  The dollar steadied against a basket of major currencies on Tuesday, having unwound most of its post-payrolls gains on lingering worries about whether U.S. authorities are comfortable with its recent strength.

With U.S. two-year Treasury yields having fallen back towards pre-jobs data levels, there are also indications that rates markets are having a hard time factoring in a Federal Reserve rate hike later this year.

The dollar index, which tracks the greenback against a basket of six major currencies, was flat at 95.303, well below the high of 96.909 scaled on Friday when the jobs report was released.

Against the yen, the dollar was 0.4 percent lower at 123.95 yen, pulling back from its 13-year high of 125.86 yen hit on Friday after unexpectedly strong U.S. jobs growth increased bets that the Federal Reserve was on course to raise interest rates before year-end.

The yen, a traditional safe-haven currency, was also higher due to weaker stock markets.

The dollar's sell-off started on Monday after a media report quoted an unnamed French official as saying that President Barack Obama was not comfortable with a strong dollar. While the White House issued a swift denial, many investors used the report as an opportunity to pare long dollar positions.

"Regardless of what he may or may not have said in the confidential meetings the press had no access to, in my view the reaction illustrates that the currency market is not yet ready to change over to more dollar strength, positive U.S. data or not," said Lutz Karpowitz, currency strategist at Commerzbank.

Several analysts said dollar strength was a hot topic for discussion amongst policymakers in the United States, and that implied the risk of more verbal intervention.

The euro shed 0.25 percent to $1.1265, having risen as high as $1.1343, helped by elevated German Bund yields and better-than-expected economic data from Germany.

Greece's drawn-out bailout talks kept investors wary. It has submitted alternative proposals to European creditors, a Greek government official said on Tuesday, but its deal with the European Union and IMF expires at the end of this month, and Athens must make heavy repayments by then that may be impossible without funds from the creditors.

"The Greek situation cannot stay unsolved for much longer, suggesting to us that the political noise level around this issue will remain high and therefore we stay cautious on trading the euro currently," Morgan Stanley said in a note.

Source: CNBC