FOREX-Dollar struggles after setback, payrolls in focus this week

Sun Jun 29, 2014 7:42pm EDT

Related Topics

* Dollar index languishes at one-month lows

* Markets in quiet start after relatively uneventful weekend

* Non-farm payrolls on Thursday key to dollar outlook

* RBA & ECB policy meetings also in focus

By Ian Chua

SYDNEY, June 30 (Reuters) - The dollar struggled to get off a one-month low against a basket of major currencies early on Monday, having posted its biggest weekly fall in over two months after a batch of disappointing U.S. data dampened the allure of the greenback.

The dollar index was last at 80.042, after dipping as low as 80.010, a level not seen since May 21. It fell on Friday and closed near the low, unlike in the previous two sessions when it managed a half-hearted recovery.

Last week's setback in the dollar came as investors downgraded their growth forecasts for the United States in the wake of data showing a surprisingly deep contraction in the first quarter and soft consumer spending.

U.S. Treasury yields have fallen as a result, which in turn soured the appeal of the dollar. The benchmark 10-year yield plumbed a one-month low of 2.507 percent on Friday, before drifting back up to 2.532 percent.

Dollar bulls are now counting on the closely watched non-farm payrolls due this week to reinforce to markets that the U.S. economic recovery is still intact.

"Strong U.S. jobs growth and declining unemployment are likely to support our view for the USD to outperform most other currencies in G20 over H2," analysts at Barclays wrote in a note to clients. They have an above-consensus forecast of 250,000 non-farm jobs gains in June.

"Our bullish USD and higher U.S. rates views are built on a continuing economic recovery, tightening labour markets and a significant rise in inflation versus Fed forecasts that forces the market to re-price the medium-term path of the fed funds rate."

The jobs report will be released on Thursday, a day earlier than usual because of the July 4 public holiday. Analysts polled by Reuters on average expect a non-farm payrolls gain of 210,000 for June versus 217,000 in May.

For now, the euro was enjoying a 0.4 percent weekly gain on the greenback. The common currency stood at $1.3645, near a 2-1/2 week high of $1.3652 set on Wednesday.

The dollar was also nursing a 0.6 percent weekly loss versus the yen and hovering just above a 5-week trough of 101.31 yen plumbed on Friday.

The euro, in contrast, eased 0.3 percent on the yen last week and traded at 138.42, well within June's 137.70-140.10 range.

Also in focus this week is the European Central Bank's (ECB) policy meeting on Thursday, although expectations for any follow-up action is very low.

In June, the ECB unleashed a far-reaching package of measures to keep the euro zone economy from slipping into a Japan-style deflation.

Data on Friday showing German inflation quickened in June, potentially pushing up the overall euro zone rate, should ease the pressure on the ECB to act again.

Annual inflation in Germany harmonised to compare with other European Union countries accelerated to 1.0 percent from 0.5 percent in May. Euro zone inflation figures are due later on Monday.

In Australia, the central bank holds its meeting on Tuesday and is widely expected to keep its cash rate steady at a record low 2.5 percent, where it has been since August 2013.

Markets though are keen to see if the Reserve Bank of Australia will renew its efforts to talk down the stubbornly high Australian dollar.

The Aussie last traded at $0.9416, not far from a two-month high of $0.9445 set on June 23 and its 2014 peak of $0.9461 reached in April, a level that appeared to be capping it for now.

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