FOREX-U.S. dollar down as investors await jobs data this week

Mon Jan 4, 2010 12:26pm EST

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(Updates prices, adds quote)

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 4 (Reuters) - The dollar fell on Monday as investors locked in recent gains ahead of a key U.S. non-farm payrolls report later this week which could firmly dictate the currency's direction in the coming months.

Optimism about the prospects for a U.S. recovery has supported the dollar recently but analysts said more evidence of a strengthening economy was needed to justify further gains.

"The dollar got a little boost in December and so on the first day back from the holidays, investors are taking some of their long dollar trades off the table ahead of the jobs data this week," said John McCarthy, director of foreign exchange at ING Capital Markets in New York.

A report showing the U.S. manufacturing sector expanded in December for a fifth straight month briefly helped the dollar trim its losses against the euro. [ID:nN04236157]. But with the U.S. non-farm payrolls report looming on Friday, investors were hesitant to push the dollar higher.

The dollar has moved mostly higher since figures early last month showed the U.S. economy shed a far fewer-than-expected 11,000 jobs in November.

For December payrolls, the median forecast of analysts polled by Reuters is for a decline of 20,000, or worse than November's fall. However, the predictions ranged widely, from a loss of 80,000 jobs to an increase of 50,000. [ECI/US]

"It remains to be seen whether this (Institute for Supply management report) will help or hurt the dollar. Whether people are speculating on interest rates or something else, the initial reaction (was) dollar positive," said Dan Cook, senior market analyst at IG Markets in Chicago.

Analysts also said an upbeat manufacturing survey out of the euro zone underpinned the euro, while a renewed rally in commodities, particularly crude oil, prompted buying of commodity currencies such as the Australian and Canadian dollars.

In midday New York trading, the euro EUR= was up 0.7 percent against the dollar at $1.4428.

The single currency recovered from earlier falls, which took it as low as $1.4258, testing a key chart support level around $1.4229 where the 200-day moving average sits, and in sight of December's low around $1.4218.

A euro zone purchasing managers' survey, which confirmed the region's manufacturing sector expanded at its fastest rate in 21 months in December [ID:nLDE6030JH], also helped the euro against the dollar.

The ICE Futures' dollar index .DXY, a gauge of the greenback's performance against six other major currencies, fell 0.6 percent to 77.410.

Against the yen, the dollar traded down 0.6 percent at 92.46 yen JPY=, giving up gains which lifted it to a four-month high of 93.21 yen. Traders said resistance was seen ahead of its 200-day moving average around 93.60 yen.

Higher longer-dated U.S. Treasury yields have underpinned the dollar, particularly against the yen in recent sessions, traders said, with benchmark Treasury yields rising above 3.9 percent last Thursday, near last year's high of 3.95 percent. [US/] US10YT=RR.

The November jobs report, along with other above-forecast U.S. data releases, prompted some economists to conclude employment growth may have commenced in December, but this is still the minority view.

Any sign of jobs growth raises expectations the U.S. Federal Reserve will hike interest rates sooner rather than later -- a move that would boost dollar-based assets.

Elsewhere in markets, commodity currencies rose on higher oil and gold prices. The Australian dollar surged 1.8 percent to US$0.9131 AUD=, while the Canadian dollar rallied, pushing the greenback 1.3 percent lower at C$1.0376 CAD=.

(Additional reporting by Nick Olivari; Editing by Andrew Hay)

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