FOREX-Dollar in wait and see mode before payrolls
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By Toni Vorobyova
LONDON, Oct 5 (Reuters) - The dollar steadied above a record low against the euro and a basket of currencies on Friday as investors braced for a crucial U.S. September jobs report due later in the session for clues on the need for more rate cuts.
August's non-farm payrolls data -- showing the first monthly drop in hiring in four years -- were seen as a key trigger for the Federal Reserve's 50 basis point rate cut two weeks ago.
Investors are expecting a positive reading this time, but are reluctant to put excessive bets on the dollar ahead of the release as any further signs of weakness in the job market would heighten doubts over the health of the wider economy and bolster the need for more rate cuts.
Also, activity was subdued as market players head for a long weekend, with public holidays in Japan, the United States and Canada on Monday.
"People are hedging their bets," said Geoffrey Yu, currency strategist at UBS in Zurich.
"If we get a weak payrolls number then people might start to wonder whether more and deeper (rate) cuts will be needed by the Fed and that will undermine the dollar further. But at this stage it's pretty much a wait and see."
The dollar index (.DXY: Quote, Profile, Research), a gauge of the greenback's value against a basket of major currencies, steadied at 78.509, above an all-time low around 77.660 hit earlier this week.
ECB NOT SO DOVISH AFTER ALL
The euro <EUR=> was slightly down at $1.4114, about a cent and a half below Monday's record high. It got a bit of a knock on Thursday after the European Central Bank held rates at 4 percent as expected but ECB President Jean-Claude Trichet sounded slightly less hawkish, highlighting downside risks to growth.
But the euro's losses proved short-lived and limited.
"ECB's Trichet signalling the increased uncertainty to growth while reiterating that the ECB's prime objective is that of price stability is aimed at telling the market that while it might not hike again within this cycle, it does not yet see it necessary to ease interest rates for now," BNP Paribas said in a research note.
"Overall, euro/dollar should keep its upside bias intact with pullbacks to be limited."
Against the yen, the euro was a touch softer at 164.41 yen <EURJPY=> while the dollar was nearly flat at 116.44 yen <JPY=>.
Japan's Fukoku Mutual Life Insurance Co. told Reuters on Friday it had actively bought unhedged euro bonds in the past six months and was likely to buy more euro debt in the next six months. [ID:nT166599]
LOOKING FOR BAD NEWS
In the United States, the consensus is for 100,000 new jobs to be added in September, more than off-setting August's loss of 4,000. Forecasts for the notoriously hard to predict indicator, due at 1230 GMT, range from 15,000 to 150,000.
Another focus in the market is whether August's reading would be revised to positive or not.
Even if jobs are created at the expected pace in September, the market may see it at best as indicating that job prospects are dimming gradually rather than precipitously in response to weakness in the housing sector.
"A weak payrolls outcome could easily see the market price in at least two full 25 basis point cuts by year-end, whereas we think it would take a remarkably strong result to see markets strip out the risk of at least one cut," CBA said in a note.