Monday May 7, 2007 - 13:08:53 GMT
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FOREX NEWS-Dollar struggles to shake off post-payrolls hangover
FOREX-Dollar struggles to shake off post-payrolls hangover
Mon May 7, 2007 8:09 AM ET
(Changes byline, updates prices, adds quotes)
By Jamie McGeever
LONDON, May 7 (Reuters) - The dollar slipped against other major currencies on Monday, kept under pressure in thin trade by last week's U.S. jobs data that emboldened investors betting on the slowing economy eventually leading to lower U.S. interest rates.
The Federal Reserve is expected to keep rates on hold at 5.25 percent on Wednesday, one day before the European Central Bank is seen keeping rates on hold at 3.75 percent and the Bank of England raises by a quarter percentage point to 5.5 percent.
But the softer-than-expected U.S. non-farm payrolls last Friday strengthened expectations the Fed will cut interest rates later in the year.
Light, rangebound trading in Europe owing to the UK public holiday -- London is the hub of global foreign exchange trading -- ensured trading ranges were extremely narrow.
The euro showed no clear reaction to the victory of conservative Nicolas Sarkozy in France's Presidential election on Sunday and held above $1.36 , while the dollar remained below 120 yen .
"The main focus this week will be the three central bank meetings, but they probably won't have a great impact on the market either," said Roberto Mialich, currency strategist at Unicredit in Milan.
The Fed will probably issue the same message that inflation remains the bank's predominant concern -- even while acknowledging a recent deterioration in growth -- and ECB President Jean-Claude Trichet will likely prepare the market for a hike next month.
"So the euro will remain steady to slightly firmer because interest rates (expectations) are supportive ... but for the time being, I expect consolidation," Mialich said.
At 1145 GMT the dollar was down 0.2 percent versus the yen at 119.90 yen and the euro was up 0.2 percent at $1.3610.
US IN FOCUS
The euro showed little reaction to surprisingly strong German manufacturing orders figures for March, and nor did it draw clear direction from Sarkozy's win in France.
While Sarkozy said in late April that he thought the euro was too strong, some analysts put that down to electioneering and say his program might actually add to the euro's strength.
"Investors are giving the benefit of the doubt to Sarkozy as he may push through some reforms that are needed which should be euro-positive," said Michael Klawitter, currency strategist at Dresdner Kleinwort in Frankfurt.
Currency markets also appeared impervious to comments from Trichet on Monday that the global economy is showing signs of rebalancing, with the euro area and Japan both on the up.
In contrast, the U.S. jobs data last week appeared to confirm that the U.S. economy was slowing.
"Friday's payroll data did not change sentiment on the dollar. Investors are looking to sell the dollar ... and longer term the outlook is fairly downbeat," said Dresdner's Klawitter.
A Reuters poll showed that the 88,000 rise in April payrolls and rise in the unemployment rate to 4.5 percent reinforced Wall Street's view that the Fed will cut rates this year.
Fed funds futures are also largely discounting one Fed rate cut of 25 basis points by December.
(Additional reporting by Simon Falush)
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