U.S. dollar hit multi-week highs after strong economic data

The U.S. dollar rose in early European trade Friday, hitting multi-week highs after a spate of strong economic data ahead of the monthly payrolls release raised the possibility of early Federal Reserve tightening.

The U.S. dollar index, which measures the dollar against a basket of six other currencies, was boosted by 0.1% at 90.605, touching a new three-week peak.

The euro against the dollar declined by 0.1% and traded at 1.2113, a three-week low. The greenback against the Japanese yen fell to 110.26. The British pound dipped by 0.1% and traded at 1.4095, sharply below the three-year peak of 1.4250 reached Tuesday. Moreover, the risk-sensitive Australian dollar dropped by 0.1% at 0.7653, after slipping to its lowest since mid-April overnight.

The American currency has been under pressure for much of 2021. Traders have reacted to ultra-easy Fed policies and the suggestions that these would stay in place for some time. Still, this narrative is starting to change as the U.S. economic recovery gains in strength, raising the possibility of it driving policy tightening.

Weekly initial jobless claims slipped below 400,000 for the first time since 2020

ADP private payrolls rose by 978,000 in May. Meanwhile, weekly initial jobless claims slipped below 400,000 for the first time since the start of the pandemic. The Institute for Supply Management’s services index increased to 64 last month, the highest on record, from 62.7 in April.

The market is waiting for U.S. nonfarm payroll data, which will be published later in the day.

According to analysts at investment management firm Brooks Macdonald, the U.S. jobs report will provide an essential temperature check on the health of the U.S. economy and supply-led inflationary pressures.

Notably, the expectation is for around 650,000 additional jobs in May.

Consumer prices grew an annual 16.6% in May. They are down from 17.1% the previous month, and below the anticipated acceleration to 17.3%.