FOREX-Dollar powers ahead on job hopes, sterling stumbles

Thu Mar 7, 2013 1:38am EST

Related Topics

* Strong job report boosts hopes for Friday's payroll data

* Sterling falls to fresh 2-1/2 year low vs dollar

* BOE may relaunch bond buying soon

* BOJ stands pat, ECB also seen on hold

* Dollar index near long-term trendline resistance

By Hideyuki Sano

TOKYO, March 7 (Reuters) - The dollar hovered near its highest level in 6-1/2 months against a basket of major currencies on Thursday after solid job data fueled hopes of recovery in the U.S. labour market, a key condition for the Federal Reserve to wind up its massive stimulus programme.

In contrast, the British pound fell to a 2-1/2-year low as market players positioned for more stimulus from the Bank of England as early as on Thursday as the UK economy faces the threat of triple-dip recession.

The yen and the euro were undermined by expectations the Bank of Japan and the European Central Bank could ease in the future, although the BOJ stood pat on Thursday and the ECB is expected to follow suit later in the day.

"One reason the dollar is broadly strong could be that while the world's many other central banks are eyeing more easing, at least at the Fed the debate is about exiting from stimulus, not doing more of it," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

The dollar index last stood at 82.481, having risen as high as 82.604, its highest since Aug. 20, in late Wednesday trade. It has rallied more than 4 percent from this year's trough of 78.918 plumbed on Feb. 1.

Report showing U.S. private employers added a larger-than-expected 198,000 jobs in February bolstered hopes that Friday's U.S. non-farm payrolls will surprise on the upside.

A strong reading could fuel speculation about when the Fed will end its bond buying programme even though investors still think it will be many months away to say the least.

The dollar index stood just about 0.1 percent below an important resistance around 82.72 from a declining trendline connecting its 2010 and 2012 highs.

A clear break would strengthen the case for the dollar's further uptrend and open the way for a test of its 2012 peak of 84.10.

STERLING FIRST TO CRACK?

The firmer dollar saw sterling fall to $1.4965, easily surpassing the previous trough of $1.4985. It last stood at $1.5004, down 0.1 percent from late U.S. levels.

The BOE, which will announce its policy at 1200 GMT, may unveil a fresh round of quantitative easing, having faced a drip-feed of dismal economic data recently.

A growing number of economists reckon another 25 billion pounds of government bond buying is in the offing.

"Given that three MPC members voted in favour of quantitative easing last month, we believe the majority will opt for a moderate 25-billion-pound balance sheet expansion, which would put sterling under further pressure," said Vassili Serebriakov, strategist at BNP Paribas.

The ECB, which meets in Frankfurt against a backdrop of political deadlock in Italy, is expected to hold fire for now, but perhaps open the way to looser policy in the future.

"While our base case remains for policy to be unchanged and little news from the press conference, the risks are skewed to the downside for the euro. (ECB President Mario) Draghi is likely to maintain a slightly more dovish tone compared with February," analysts at Barclays Capital wrote in a client note.

The euro firmed to $1.2994, up 0.20 percent from late U.S. levels, with last week's low of $1.2966 serving as a support for now. But it was still within sight of its December trough of $1.2876.

In a move positive for the currency, rating firm Standard & Poor's revised its outlook on Portugal's sovereign ratings to stable from negative but the market reaction was limited as Lisbon's progress on fiscal reforms has been long known.

Against the yen, the greenback briefly popped above 94.00 for the first time since late last month, moving ever closer to a 33-month peak of 94.77 reached on Feb 25.

But hefty selling above 94 yen, from option traders as well as Japanese companies repatriating overseas profits ahead of their March 31 book-closing, helped to push it back to 93.91 yen, about 0.2 percent below its late U.S. levels.

The BOJ kept its policy on hold as expected on Thursday at the last policy meeting chaired by the outgoing governor Masaaki Shirakawa, with markets seeing fresh stimulus measures at one of its meetings in April under new governor.

The greenback's broad strength did not spare even commodity currencies, which tends to benefit from higher risk appetite.

The Aussie dollar stabilised for now at $1.0243, after having slipped from Wednesday's 1-1/2-week high of $1.0303.

Its Canadian counterpart flirted with eight-month lows on the U.S. unit after the Bank of Canada softened its stance on the need for tighter policy.

The U.S. dollar bought C$1.0311, having risen as high as C$1.0337 on Wednesday, near the eight-month peak of $1.0343 hit last week.

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