Wednesday July 5, 2006 - 22:55:51 GMT
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Reuters - www.reuters.com
FOREX - Dollar gains after strong private-sector jobs data
NEW YORK, July 5 (Reuters) - The dollar gained against the euro and yen on Wednesday after a report on private-sector U.S. employment showed solid job growth in June, but the U.S. currency's bounce was likely to be short-lived.
The employment data initially suggested Friday's monthly U.S. payrolls report may reflect similar strength and build the case for more interest rate hikes from the Federal Reserve.
But the Fed is still perceived to be closer to pausing while other major central banks like the European Central Bank, which has a policy meeting on Thursday, and the Bank of Japan are only just starting to tighten monetary policy, so the dollar is unlikely to retain this week's hard-won gains.
Also the U.S. currency was boosted due to safe-haven flows after news overnight that North Korea had test-fired a barrage of missiles.
"I really see the dollar strength today being temporary as a result of two factors. One was the North Korea missile launch and the second was the ADP number ... the market is very illiquid and we needed something to trade off," said Michael Woolfolk, senior currency strategist at the Bank of New York.
"My view this week is be long euros, be long Canadian dollars, be neutral on the yen and be short U.S. dollars," he said.
Earlier, the monthly ADP National Employment Report showed that private sector employers added an estimated 368,000 jobs in June.
After this report, analysts at several U.S. investment banks, including Lehman Brothers and Goldman Sachs raised their forecasts for June's non-farm payrolls reading.
By late afternoon in New York, the euro had pared some of its losses and was last down 0.4 percent at $1.2731, but above an intraday low of $1.2702, its lowest since June 30, the day after the Fed followed its 17th consecutive quarter-point rate hike with a statement saying slower growth may ease inflationary pressures.
HIGHER PAYROLLS FORECASTS
Friday's U.S. Labor Department report is expected to show a gain of 185,000 nonfarm jobs in June, according to the most recent Reuters survey. The Reuters estimate was previously for a reading of just 155,000.
A separate government report on Wednesday showing U.S. factory orders rose 0.7 percent in May after slipping a downwardly revised 0.2 percent in April had little effect on the currency market.
Against the yen, the dollar was last up 0.8 percent at 115.73 yen .
After the North Korea news and ahead of the ECB meeting, the euro was at 147.35 yen , up 0.3 percent and just shy of the peak for the day at 147.39, its highest since the single currency was launched in 1999.
Analysts expect the euro to continue drawing support from expectations the ECB may signal its intention to speed up the pace of monetary tightening when it meets.
A recent run of strong euro zone data has increased market expectations that the ECB could raise its key interest rate, now at 2.75 percent, as early as August.
After this week's ECB meeting and U.S. payrolls report, markets will shift their to focus to next week's Bank of Japan policy meeting, at which most investors expect an end to the country's zero interest rate policy, analysts say.
A strong BOJ tankan business sentiment survey this week helped spark "a pretty clear shift in thinking toward the BOJ moving next week," said Richard Franulovich, currency strategist with Westpac Bank in New York. (Additional reporting by Steven C. Johnson and Veronica Brown in London)
Â© Reuters 2006. All Rights Reserved.
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