Dollar Gains on Jobs Data That Doesn't Bolster Argument for Rate Change

The dollar rose after U.S. payrolls data showed moderately healthy job growth but did not make the case for a near-term change in interest rates.

The greenback got an added boost against the euro after Market News International cited "well-informed sources" saying the European Central Bank may raise rates just one more time.

"Suggestions of a less hawkish ECB have taken some of the shine off the euro, and the details of the jobs report were quite positive for the U.S. economy," said Bank of New York currency strategist Michael Woolfolk.

The euro remained below the psychologically important $1.3000 level, trading near a session low and down about 0.5 percent on the day. Earlier, it hit a session peak of $1.3064, according to Reuters data, but then swiftly turned around.

Though the U.S. economy added fewer jobs than expected in January, sharp upward revisions to the government's estimates of November and December employment growth painted a rosier
picture of U.S. economic strength.

"But does this data increase the likelihood the Fed will cut? No. Does it say that they might hike? Well, not that either, but we're going to have to see more data before we could move towards a hike," said Meg Browne, senior currency strategist with Brown Brothers Harriman in New York.

ECB, G7 In Focus

Strategists said uncertainty about where the ECB may take interest rates this year was weighing on the euro.

"Markets were expecting the ECB to take rates to 4% before pausing, and now it looks like they're pulling that forward to 3.75%," said Paresh Upadhyaya, currency analyst at Putnam Investments in Boston.

The ECB has delivered six quarter percentage point hikes since late 2005, pushing its refinancing rate to 3.5%. Benchmark U.S. and UK interest rates stand at 5.25%.

With the payrolls data out of the way, the market's attention turned to what might be said about the weak yen at next week's Group of Seven developed nations meeting.

The yen's 16% slide in the past three years to record lows against the euro has captured the market's attention before the Feb. 9-10 gathering, as European officials have sought to make the currency's troubles a topic of discussion.

Japanese and U.S. officials, however, have played down a focus on the yen, with U.S. Treasury Secretary Henry Paulson saying on Thursday he was satisfied the yen's value was set by markets and that he was looking at the yen more carefully "only because of the publicity coming out of Europe."

Japan's low interest rates -- 0.25% compared with 3.5% in the euro zone and 5.25% in the United States -- have given market players the green light to borrow the yen for funds to buy higher-yielding currencies in the carry trade.

Japanese investors have also sought better returns elsewhere, leading to a large outflow of cash from the country.