FOREX-Dollar back in favour, NZD boosted by jobs data

Ian Chua
Tuesday, 5 Nov 2013 | 6:07 PM ET

* Dollar index drifts back towards a seven-week peak

* Euro pinned down as markets position for dovish ECB

* Kiwi hits two-week highs after upbeat local jobs data

SYDNEY, Nov 6 (Reuters) - The U.S. dollar maintained a bid tone early in Asia on Wednesday after an upbeat U.S. report kept alive some expectations the Federal Reserve might scale back stimulus as soon as next month, while strong domestic jobs data lifted the New Zealand dollar.

In contrast, ongoing speculation the European Central Bank (ECB) could cut interest rates at Thursday's policy meeting, or at least sound dovish, kept the common currency under pressure.

The dollar index last traded at 80.709 , having climbed 0.2 percent on Tuesday to be back within striking distance of a near two-month peak of 80.930 set on Monday.

An industry report on Tuesday showed U.S. service-sector business activity picked up in October and firms took on workers, an encouraging outcome in a month that saw a political standoff force a partial government shutdown for 16 days.

The benchmark Treasury yield rose to three-week highs around 2.67 percent following the report, helping the dollar rebound against the yen. It fetched 98.55 yen, up from Tuesday's low of 98.16.

The euro, meanwhile, reversed most of Monday's gains to be back near a two-month trough of $1.3442. It last stood at $1.3472.

Following last week's worrying drop in inflation, some analysts suspect the ECB might be forced to add more stimulus soon in order to protect growth.

"We expect the ECB to soon make clear its intentions regarding arresting deflation concerns," analysts at Barclays Capital wrote in a note to clients.

"We anticipate a looser monetary stance to be adopted at the December meeting, but the ECB's intentions to be aired ahead of it. We remain short EUR via a put spread."

A notable performer overnight was sterling, which gained strongly after data showed the UK services sector expanded at its fastest pace in 16 years.

Sterling rose 0.5 percent to $1.6063 and hit a one-month high against the euro, which slid to 83.94 pence .

Investors also warmed to the New Zealand dollar after data showed the economy added the most jobs in more than five years, dropping the unemployment rate to 6.2 percent from 6.4 percent

"All in all, it's a good set of numbers and certainly supportive of the market's expectations for the RBNZ to commence hiking rates in early 2014," said Tom Kennedy, economist at JPMorgan.

The kiwi dollar climbed to a two-week high of $0.8378 and last traded at $0.8361.