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Dollar Rises as Investors Position for Jobs Report

The dollar rose to a nearly six-week high against the yen Wednesday after economic reports showed

growth in U.S. employment

, boosting expectations for a favorable reading on Friday's non-farm payrolls data.

Dollar and Euro
Dollar and Euro

The greenback advanced for a third consecutive day after a report on the U.S. services sector and another on private-sector payrolls indicated modest growth in the labor market last month, feeding hopes that the troubled housing market has not dragged down other parts of the U.S. economy.

"As we continue to accumulate more and more data, we learn the U.S. consumer and U.S. economy have been very resilient to shocks," said Michael Woolfolk, senior currency strategist with The Bank of New York Mellon in New York.

"We're anticipating a solid payrolls report on Friday which could provide further reason to square up short dollar positions."

In afternoon trading in New York, the dollar was 0.8 percent higher at 116.55 yen, while the euro climbed 0.6 percent to 164.66 yen.

The euro edged 0.2 percent lower to $1.4120 but was still not far from a record high of $1.4281 hit on Monday, according to Reuters data.

Investors' cautious venture back into carry trades has helped to lift higher-yielding currencies this week, such as the Australian dollar, which touched an 18-year high, and the New Zealand dollar. Such trades are used to borrow in low-yielding currencies to buy assets in higher-yielding ones.

The Australian dollar rose to an intraday high of US$0.8919, about a third of a cent from an 18-year high of $0.8949 hit on Tuesday. It last traded up 0.4 percent at $0.8851.

For the dollar's rally to continue, analysts said, it would have to sustain itself beyond Friday's U.S. employment report.

The payrolls number would have to far exceed the consensus forecast for a 94,000 gain to peel dealers away from the current dollar negative trend.

"The big problem for the dollar is that it is pretty much consensus that August NFP (non-farm payrolls) overstated weakness, so we are definitely going to need a solidly above-consensus NFP to get any meaningful dollar bounce out of Friday's data," said Alan Ruskin, chief international strategist with RBS Greenwich Capital in Greenwich, Connecticut.

Long-term investors point to lengthy dollar-negative trends that show no sign of ending soon. Qatar's prime minister said on Tuesday in an interview that the country's $50 billion sovereign wealth fund has slashed its exposure to the dollar in half in the last two years.

This trend of diversifying portfolios out of dollars and into currencies that are expected to appreciate in coming years is one that has been often cited as a reason for dollar weakness over the last several years.

Italian Prime Minister Romano Prodi said he and German Chancellor Angela Merkel were worried about the euro's strength, the latest officials to express concern about the exchange rate's impact on euro zone economies.

However, foreign exchange traders have largely shrugged off policy-makers' comments and focused instead on monetary policy, especially with both the Bank of England and the EuropeanCentral Bank meeting on Thursday.