Thursday July 6, 2006 - 21:50:14 GMT
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Reuters - www.reuters.com
FOREX - Dollar falls, ECB's Trichet supports euro
NEW YORK, July 6 (Reuters) - The dollar fell against the euro on Thursday after European Central Bank President Jean-Claude Trichet pledged "strong vigilance" in curbing inflation which reinforced expectations for another rate hike.
The ECB left rates at 2.75 percent, but Trichet's comments hinted at a possible rate hike in August, boosting the euro as investors positioned for at least two more increases in euro zone rates this year.
The market's focus quickly returned to Friday's U.S. June unemployment report, which many Wall Street analysts expect to show robust job creation, but traders, wary of downside surprises, still let the dollar slide against other major currencies.
The Federal Reserve is thought to be near the end of a two-year stretch of constant rate rises and many see Friday's jobs figures as the clincher for another increase in U.S. borrowing costs.
"Traders will not be happy with a (payrolls) figure that is not above 200,000," said Tim Mazanec, senior currency strategist at Investors Bank & Trust in Boston.
"The key here is we need to see a figure that will force the Fed to raise rates again," he said.
The euro rallied sharply against the dollar after Trichet's remarks, hitting a session peak of $1.2784, before paring some of its gains to reach $1.2777 by late afternoon in New York, but was still up over 0.4 percent.
The euro also carved out a fresh record high of 147.40 yen before drifting to 147.13 yen , unchanged on the day.
"(Trichet's) comments are supporting the euro across the board, but I don't expect any follow-through on this," said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut. "You will see the markets starting to square up and refocus on payrolls."
Economists are looking for 185,000 workers to have been added to U.S. nonfarm payrolls in June, against May's 75,000 rise, according to Reuters' estimates.
DOLLAR UNDER PRESSURE
Against the yen, the dollar was down 0.46 percent at 115.14 yen , as safe-haven buying on security concerns in Asia subsided a bit, a day after the U.S. currency was boosted by missile tests in North Korea.
The dollar also was undermined earlier in the session after the Institute for Supply Management reported a decline in its non-manufacturing index in June, particularly a slip in the employment component to its lowest level since January.
Traders said market rumors of a calculation error in Wednesday's ADP National Employment Report that estimated a 368,000 private-sector jobs gain in June also weighed on the dollar, though ADP said it stood by its original estimate. For more, please double click [nN06393646].
The large jobs gain forecast by ADP on Wednesday prompted several U.S. investment banks to raise their forecasts for June's nonfarm payrolls and boosted expectations for higher U.S. interest rates.
The jobs data will play a key role in helping the market determine whether the Fed is likely to raise rates for an 18th straight time in August, and how that would play out for the the dollar at a time when other central banks also are tightening.
Â© Reuters 2006. All Rights Reserved.
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