×

Dollar Up Ahead of Euro Rate Decision

The dollar was up most of the day against the euro and yen after a report showed the U.S. private sector created more jobs than expected last month, leading some to conclude the labor market remained resilient.

But the greenback's gains were fairly modest as investors avoided placing large bets before Thursday's European Central Bank meeting at which officials were expected to lift interest
rates and address recent currency movements. The Bank of England is also meeting on Thursday, but is expected to leave rates unchanged.

Earlier, the ADP employment report said the private sector beat economists' forecasts and added 158,000 jobs in November, possibly a sign that Friday's U.S. nonfarm payrolls report, which captures private and government employment, may also reveal a bigger-than-expected net gain.

That followed a surprisingly strong U.S. service sector survey released on Tuesday and "gave a bit of a boost to the dollar," said Greg Salvaggio, vice president for currency trading at Tempus Consulting in Washington, D.C.

But even after two straight sessions of gains, the dollar remained close to a 20-month low versus the euro, and sentiment toward the greenback remained negative.

"The market is still bearish on the dollar, because even on profit-taking, the euro is holding up pretty well," said Dixon Fung, currency trader at MG Financial in New York, adding that the euro over the past two weeks has settled comfortably into a $1.3050-$1.35 range.

Tempus' Salvaggio said further dollar moves were likely to be limited ahead of Thursday's ECB meeting, at which officials are expected to lift euro zone lending rates to 3.5% and give clues about the outlook for 2007.

Currency analysts will also watch for a discussion at that meeting about the euro's swift rise against the dollar. So far, most eurozone policymakers have said the euro gains are no cause for concern, though French officials have worried about a possible negative impact on exports.

"The ECB meeting tomorrow is key because (ECB President Jean-Claude) Trichet might be drawn into talking about the currency," said David Mozina, head of foreign exchange strategy at Lehman Brothers in New York. "And he may say that the strength in the currency may be doing some of the dirty work of (raising) interest rates."

Demand for the greenback has declined in the past week amid growing expectations that the Federal Reserve's next move will be to cut interest rates to boost growth. This contrasts with forecasts of more rate increases in other countries.

But strong service sector and private payrolls reports this week have injected some uncertainty into that outlook for easier U.S. credit.

According to the latest Reuters poll of economists, the U.S. Labor Department's employment report on Friday is expected to show 110,000 nonfarm private and government jobs created in November, up from 92,000 in October.