SYDNEY/SINGAPORE - The dollar held near a two-month high against a basket of major currencies on Monday, having staged a broad rally after upbeat US jobs data bolstered the case for the Federal Reserve to scale back stimulus as early as next month.
The dollar index eased 0.1 per cent to 81.262 ($101.30) but stayed within sight of a two-month high of 81.482 ($101.58) set on Friday after a closely watched report showed employers added 204,000 new jobs to their payrolls last month, soundly beating forecasts for 125,000 jobs.
The data was even more remarkable as it came in a month when a budget standoff in Washington forced a 16-day government shutdown, suggesting the economic recovery was on a firmer footing than expected.
"The market has kind of re-priced the tapering expectations with the data opening the possibility that tapering could take place much sooner than the March consensus. So it's shifting back to the December or January kind of time frame," said Sim Moh Siong, FX strategist for Bank of Singapore.
"I think the dollar generally will stay supported," he added.
Despite that, Federal Reserve Chairman Ben Bernanke and two other top policymakers said there is still plenty of room for the jobless rate to fall further, suggesting continued support for the central bank's massive stimulus programme.
"Our baseline case remains that the Fed would start tapering in March 2014, but the solid NFP number keeps December tapering on the table and the next November employment report will be critical for the Fed's decision," analysts at Barclays Capital wrote in a note to clients.
Investors reacted to the jobs numbers by driving the benchmark 10-year yield up as far as 2.763 per cent, the highest since Sept. 20.
That in turn provided support for the dollar, which held steady versus the yen at 99.04 yen ($1.25) after having jumped around 1 per cent versus the Japanese currency on Friday.