FOREX-Dollar off six-week high as US jobs, central bank decisions eyed

Thu Sep 5, 2013 12:15am EDT

Related Topics

* Yen on defensive as safe-haven bids unwound, no reaction after BOJ

* Signs of improvement in Europe keeps euro, sterling afloat for now

* Pound near 3 1/2-yr high vs yen, 4-month high vs euro

* Dollar could ultimately gain if job recovery confirmed

By Hideyuki Sano

TOKYO, Sept 5 (Reuters) - The dollar steadied just below a six-week high on Thursday ahead of central bank policy meetings in major economies and a crucial U.S. jobs report that could make or break the case for a reduction in U.S. stimulus this month.

The yen was stuck near one-month low against the dollar, after investors unwound their safe-haven buying spurred by concerns over U.S. plans to attack Syria, while moving little after the Bank of Japan maintained its policy as expected.

The dollar index stood at 82.231 , little changed on the day but not far from a six-week high of 82.516 hit on Tuesday.

The dollar dipped on Wednesday on profit-taking and also in part as the euro gained after data showed euro zone businesses had their best month in over two years in August as orders increased for the first time since mid-2011.

"Both the euro zone and British economies seem to be improving of late. So some people who had expected more easing from Europe may be having a rethink and adjusting their positions," said Katsunori Kitakura, associate general manager of market making at Mitsui Sumitomo Trust Bank.

Yet the euro last traded at $1.3185, down slightly on the day and not far from a six-week low of $1.3138, with the key focus now on a policy review by European Central Bank on Thursday.

The bank is widely expected to reaffirm it will keep interest rates low to support the euro zone's fragile recovery.

Some traders say the common currency could be ambushed by rising political tensions in Italy, where allies of Silvio Berlusconi are threatening to bring down the government if the Senate votes to expel him following a tax fraud conviction.

Perkier than the euro was sterling, which benefited from data on Wednesday showing the UK services sector expanded at its fastest pace in more than six years in August

The data added to growing evidence of a broad-based pick-up in the UK economy and bolstered market expectations that the Bank of England may have to tighten monetary policy well before it has indicated.

Yet analysts note that the BoE may be concerned about markets pricing in a rate hike earlier than its own forward guidance, and that it could deliver a warning after its policy meeting on Thursday, which could pour cold water on the pound's latest strength.

The cable stood at $1.5617 after having gained 0.8 percent so far this week.

The pound fetched 155.70 yen, within sight of a 3-1/2-year high of 156.75 yen hit in May, while the euro stood at 0.8451 pound, near a four-month low of 0.84265 pound touched on Wednesday.

The U.S. ADP private-sector jobs number is due out on Thursday, which could be seen as an early indicator on more important government employment report on Friday.

If the data confirms a continued recovery in the U.S. job market, that will be seen as ensuring the Federal Reserve will start reducing its stimulus at its Sept. 17-18 meeting.

Expectations that the Fed will be the first to rate hikes among major central banks have underpinned the dollar.

"I think that in the big picture, the dollar is on rising trend. If two-year bond yield rose further, say to above 0.5 percent, that could spur more dollar buying," said a trader at a Japanese bank.

The two-year U.S. debt yield hit a two-year high of 0.478 percent on Thursday, widening the dollar's yield advantage over other currencies.

Against the yen, the dollar held firm at 99.71 yen, flat on the day but just a touch below its Aug 2 peak of 99.955 yen following three straight days of gains, which traders say was due in part to unwinding of safe-haven buying on concerns over Syria last week.

"It seems like the market is tentatively concluding that any military action may not last that long and its impact on the world economy will be limited. The market is coming back to business as usual," said Bart Wakabayashi, head of forex at State Street Global Markets.

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