Friday May 4, 2007 - 10:28:20 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar holds firm before US payrolls data
FOREX-Dollar holds firm before US payrolls data
Fri May 4, 2007 6:11 AM ET
(Updates price, adds quotes, changes byline)
By Veronica Brown
LONDON, May 4 (Reuters) - The dollar rose to a 2-1/2 week high against a basket of currencies on Friday after the previous session's firmer U.S. data brightened sentiment ahead of a key U.S. jobs report due later.
A survey which showed euro zone service sector growth dipped unexpectedly in April, with Italy's index hitting its weakest since October 2005, weighed briefly on the euro.
Thursday's data showed the U.S. services sector expanded at a faster pace than expected in April and productivity improved in the first quarter. The employment component of the services survey rose, while jobless claims fell unexpectedly in the latest week. Investors have been expecting the Federal Reserve to cut interest rates this year -- which would lower the dollar's yield appeal -- but further upbeat data could pour cold water on those expectations.
"There is definite upside for the dollar after the data we've seen so far this week. It may be in future months this will be seen as a one-off, but for the time being it raises some doubts about some of the prior pessimism about the U.S. economy," Mellon Bank head of currency research Ian Gunner said.
By 1003 GMT, the dollar index <=USD> had risen above 82.0, to its highest since April 17, and up from two-year lows hit earlier this week.
The euro was flat on the day at $1.3559 , some way off the all-time high of $1.3682 set last week.
The dollar was also steady at 120.37 yen after hitting a two-month high on Thursday. The euro was steady at 163.06 yen .
Trading was again thin with markets in China and Japan shut for a holiday.
According to a Reuters poll, the April payrolls data is likely to show the U.S. economy generated 100,000 jobs, with the jobless rate ticking up to 4.5 percent from 4.4 percent in March.
But a closely-watched derivatives auction showed investors believe the number would be 88,900.
"(The unemployment rate at 4.5 percent) would likely prevent the Fed from adopting a completely neutral tone in next week's FOMC statement," UBS said in a note to clients.
Analysts say a weak outcome could revive speculation of an early rate cut from the Fed and so undermine the dollar.
Later on Friday more insight on where the Fed stands on monetary policy could come with speeches from New York Fed President Timothy Geithner and Kansas City Fed President Thomas Hoenig.
Elsewhere, the Australian dollar fell to US$0.8172, falling below $0.82 for the first time in four weeks after the central bank lowered its forecast for underlying inflation, suggesting rates were on hold for the rest of the year.
The Swedish crown rose briefly against the euro and dollar after the central bank left interest rates steady as expected but said rates need to be raised more than it forecast in February.
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