Dollar Coasts Ahead of U.S. Jobs Data

Fri Aug 6, 2004
By Charlotte Cooper

LONDON (Reuters) - The dollar steadied against the euro on Friday as the market waited to see if U.S. payrolls data later in the day would fall short of forecasts and dampen expectations about the pace of interest rate rises.

Predictions are for a rise of 200,000 to 250,000 jobs in July, but a recent mixed bag of U.S. data, particularly unexpected weakness in the employment components of manufacturing and service surveys, has made the market nervous.

The dollar tested its lowest level against the euro for four days during the Asian session on Friday but by early European trade it had inched back to New York closing levels.

"We are waiting for payrolls -- it's as simple as that. Euro/dollar got a bit of a squeeze up last night, stops got hit, but really it is just going to be drifting until that payrolls number," said Lee Ferridge, head of global currency strategy at Rabobank in London.

"This is really a big number. It's going to set the tone for the next month."

As of 0345 EDT, the euro was around $1.2057, unchanged from late U.S. levels after climbing to $1.2089 earlier.

The dollar was holding at 111.64 yen, almost unchanged from late U.S. levels and paring back some of Asia's gains to one-week highs made on the back of rising oil prices.

The perception that Japan, which relies almost completely for its oil on imports, is the most vulnerable to a surge in oil prices has knocked the yen this week.

U.S. oil prices struck another record high close to $45 a barrel on Friday, helping send the Japanese stock market's benchmark Nikkei average down 0.8 percent.

PAYROLLS, PAYROLLS

The market is divided over what to expect from payrolls.

The Reuters consensus of analysts' forecasts gives expectations for a rise of 228,000 for July and some economists are looking for a much higher number of around 300,000.
That would be a big jump from June's 112,000 increase, which some also think could be revised higher. But after weaker than expected components in manufacturing and service sector surveys this week, others are more doubtful.

The Federal Reserve's Open Markets Committee meets on August 10 and is widely expected to raise interest rates by a quarter of a percentage point to 1.5 percent. But a weaker than expected payrolls number on Friday could cause doubts about how quickly the Fed will act from there.

"The Fed will raise rates by a quarter percentage point next week. But if the payroll data is weaker than expected, it could raise speculation the Fed may skip a rate rise in September," said Satoshi Tokuda, a currency manager at Sumitomo Corp in Tokyo.

While dollar bulls hope gradual rises in U.S. interest rates will attract foreign investors to dollar-denominated debt, helping the dollar, bears think recent mixed U.S. indicators may make the Fed slow its tightening cycle.

Elsewhere, German industrial output data is due at 0600 EDT. Economists expect a drop of 0.15 percent in June after a rise of 1.0 percent in May.

Home Loans Articles, Mortgage Loans Articles, Financial News