GO
Loading...

FOREX-Dollar mired near 5-week low ahead of U.S. jobs data

Ian Chua and Masayuki Kitano
Thursday, 5 Dec 2013 | 10:38 PM ET

* Dollar index hovers near five-week low

* Euro steady near five-week high vs USD in wake of ECB

* USD near-term outlook hinges on non-farm payrolls

* Strength of US jobs will shape expectations for Fed taper

SYDNEY/SINGAPORE, Dec 6 (Reuters) - The dollar hovered near a five-week low versus a basket of currencies on Friday, with its near-term fortunes riding on whether key U.S. jobs data will bolster the case for the Federal Reserve to start scaling back its monetary stimulus.

The euro held steady near a five-week high versus the greenback, having powered higher on Thursday after the European Central Bank gave no fresh indication that it would ease policy anytime soon.

While ECB President Mario Draghi said the bank was ready to take fresh policy action to support a fragile recovery, he was light on details including whether the bank would use a negative deposit rate.

Draghi also noted that liquidity in the banking system had improved since the last cash injection, or LTRO, and attached conditions for any repeat. These comments saw German bond yields jump to seven-week highs, which in turn helped underpin the euro.

"The comments do not indicate any sense of urgency on the part of the ECB," London-based Martin McMahon, an economist at Commonwealth Bank, wrote in a note to clients.

"If there is to be a new LTRO, the ECB wants 'to make sure that it reaches the economy'. Again the comments do not indicate that follow-up LTROs are imminent."

The common currency last fetched $1.3667, having climbed more than 0.5 percent on Thursday to $1.3677, a level not seen since Oct. 31. Against the yen, it held steady at 139.17, staying below a five-year peak of 140.03 set earlier in the week.

The dollar index, which measures the greenback's value against a basket of currencies, struggled to gain traction in the wake of the euro's bounce.

The dollar index stood at 80.286, staying near a five-week low of 80.231 set on Thursday.

U.S. PAYROLLS

Further downside for the greenback hinges on how the U.S. non-farm payrolls data due later on Friday turns out.

Analysts polled by Reuters expect the U.S. economy to have created 180,000 jobs in November, following 204,000 in the previous month.

Any upside surprise will no doubt keep alive expectations the Federal Reserve may start to scale back its bond-buying stimulus programme at the Dec. 17-18 meeting. Such an outcome could bolster the dollar.

Conversely, a soft report will see the market expect the Fed to maintain its stimulus programme for longer, a possible negative for the greenback but positive for riskier assets.

If the U.S. jobs data comes in strong and bolsters speculation that the Fed may taper this month, the implications for the dollar versus the yen could be mixed, at least in the near term, said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.

"The way equities are reacting at the moment, I think it will be seen as negative for equities ... On the other hand, it will support U.S. yields, so you've a bit of a conflicting force for the yen," Kotecha said.

The dollar was steady at 101.82 yen, after having set a six-month high of 103.38 yen earlier in the week.

Currency traders often focus on moves in equities for direction hints on the yen, with the Japanese currency tending to get a lift when share prices decline.

The correlation between moves in dollar/yen, and swings in U.S. and Japanese shares, has picked up over the past couple of weeks.