FOREX-Dollar holds firm near 7-week high after upbeat US data

Thu Sep 5, 2013 8:32pm EDT

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By Hideyuki Sano

TOKYO, Sept 6 (Reuters) - The dollar held firm near a seven-week high against a basket of currencies on Friday after solid U.S. economic data sharpened expectations the upcoming crucial jobs report might make a reduction in the Federal Reserve's stimulus a done deal.

In contrast, the euro was soft after the head of the European Central Bank struck a cautious assessment on budding signs of an economic recovery in the euro zone, saying the bank is ready to cut rates and inject liquidity.

"The dollar is strong on the back of rising expectations that rate hikes by the Federal Reserve could come sooner rather than later," said Shin Kadota, FX Strategist at Barclays.

"We expect the Fed to start tapering its stimulus unless today's payrolls report was exceptionally weak," he added.

The dollar index stood at 82.626 in early Asian trade, having risen as high as 82.671 on Thursday, its highest level since late July, and extending its gain from its Aug 20 low of 80.754 to 2.4 percent.

Against the yen, the dollar hit a six-week high of 100.24 yen and last stood at 100.10 yen.

The euro traded at $1.3119, near Thursday's seven-week low of $1.3110.

Spurring fresh interest in the dollar was a report from the U.S. Institute for Supply Management, which showed services industries in August posted their fastest growth since December 2005, well above expectations.

The employment component of the ISM services index also jumped to a six-month high while weekly initial jobless claims fell more than expected to a seasonally adjusted 323,000.

Separately, data from payrolls processor ADP showed U.S. private employers added 176,000 jobs in August, nearly matching expectations.

The confluence of upbeat data helped to fan expectations the long-awaited government employment report due at 1230 GMT would also point to a steady recovery in U.S. employment, and firm up the case for the Federal Reserve to start winding back its bond buying this month.

Also supporting the dollar, U.S. bond yields jumped, with the 10-year yield hitting the 3 percent mark and the two-year yield moving above 0.50 percent.

Meanwhile, the euro wobbled near multimonth lows against the British pound, which held firm after the Bank of England showed no apparent unease over rising British interest rates.

The euro fetched 0.8417 pound, near a four-month low of 0.8408.

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