* Dollar index hovers near 10-month peak after rally
* Nonfarm payrolls data next major focus
* China PMI to take centre stage in Asia
By Ian Chua
SYDNEY, Aug 1 Dollar bulls took a breather early
on Friday ahead of a closely watched jobs report that has the
potential to make or break a rally that saw the greenback post
its best monthly performance in over a year.
The dollar index was steady at 81.449, having risen
2.1 percent in July to a 10-1/2 month peak of 81.573. The dollar
bought 102.78 yen, after peaking at a four-month high of
The question now is whether this is the beginning of a
lasting uptrend, one that has frustrated dollar bulls for much
of this year, or another false start.
The U.S. jobs report due at 1230 GMT could provide a clue. A
Reuters survey of economists showed payrolls probably increased
by 233,000 in July.
While that would be a step down from June's hefty increase
of 288,000 jobs, it would still represent a sixth straight month
that employment has expanded by more than 200,000, a stretch not
seen since 1997.
With the Federal Reserve playing coy on when interest rates
will rise, markets are looking more and more to economic data to
make their own bets.
Analysts at BNP Paribas expect payrolls to increase by
225,000. "Data in line with our forecasts should leave markets
focused on the possibility that the Fed begins tightening policy
in the first half of 2015 rather than waiting to Q3, keeping US
front-end rates and the USD supported," they wrote in a note to
The euro traded at $1.3389, steadying near a
nine-month trough of $1.3366 plumbed earlier in the week.
Working against the common currency was data that showed
annual inflation in the euro zone fell in July to its lowest
since the height of the financial crisis in 2009.
That should keep the risk of deflation on policymakers'
radar, although it is unlikely to spur the European Central Bank
into immediate policy action when it meets next week.
Broad strength in the greenback has pushed the Australian
dollar to a near two-month low of $0.9280, well off its
July peak of $0.9505.
The Aussie could make a comeback if a survey on China's vast
factory sector, due at 0100 GMT, shows activity expanded at the
fastest pace in eight months in July, as suggested by a Reuters
(Editing by Shri Navaratnam)