Dollar hits two-year low vs euro; jobs data eyed

By David McMahon

NEW YORK (Reuters) - The dollar slid to a two-year low against the euro on Thursday as trade wound down ahead of a closely watched U.S. jobs report at the end of the week that may shed more light on the outlook for U.S. interest rates.

A weak non-farm payrolls report would likely reinforce expectations the Federal Reserve may cut interest rates by as early as mid-year, in contrast to the euro zone and the UK, where interest rates are expected to rise in coming months.

"Trade is really thin today, and all things equal, people just want to be short dollars," said John McCarthy, director of foreign exchange trading at ING Capital Markets in New York. "We're seeing good buying of the euro today, and the backdrop to that is that euro zone rates look to be headed higher."

Dealers said, however, that trade had almost ground to a halt due ahead of weekend Easter holidays, and that the euro's rise was largely technical in nature.

The euro rose as high as $1.3442 EUR= on electronic trading platform EBS after triggering automatic buy orders above $1.3410, said one trader, its highest since March 2005. The euro last changed hands at $1.3425, up 0.4 percent.

The euro was at 159.30 yen EURJPY=, after earlier touching a five-week high of 159.39, according to EBS.

Sterling was down 0.2 percent at $1.9715 GBP= after the Bank of England left rates on hold at 5.25 percent, disappointing some who had bet on a rate hike. Most analysts still expect the central bank to raise rates in May.

The dollar stood at 118.66 yen JPY=, little changed on the day and down from a five-week high of 119.09 yen touched on Wednesday.

The Canadian dollar was the day's biggest mover, with the U.S. dollar falling 0.75 percent against its Canadian counterpart to C$1.1502 after data showing Canada's economy added 54,900 jobs in March, well above consensus CAD=.

The non-farm payrolls report on Friday is expected to show the U.S. economy added 120,000 jobs in March, up from 97,000 in February, according to a Reuters poll.

The number of U.S. workers filing new claims for jobless benefits rose a larger-than-expected 11,000 last week, government data showed on Thursday in a report adding to the mixed economic picture painted by recent data.

(Additional reporting by Nick Olivari)