* Dollar index hovers near 10-month peak after rally
* Nonfarm payrolls data next major focus
(Updates prices, adds comments)
By Ian Chua and Masayuki Kitano
SYDNEY/SINGAPORE, Aug 1 Dollar bulls took a
breather 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 81.479, having risen
2.1 percent in July to a 10-1/2 month peak of 81.573.
Against the yen, the dollar edged up 0.1 percent to 102.89
yen but stayed below a four-month high of 103.15 yen
struck on Wednesday.
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 less than 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.
"If it comes in above 250,000, I think that's the threshold
for a positive surprise," said Callum Henderson, global head of
FX research for Standard Chartered Bank in Singapore.
Such an outcome could lift the dollar to levels around
103.50 to 104.00 yen, he said. Standard Chartered, however, is
expecting nonfarm payrolls to increase by a below consensus
200,000, and for the dollar to pull back to levels around 102.50
yen, Henderson added.
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 last traded at $1.3388, steadying near a
trough of $1.3366 plumbed earlier in the week, its lowest level
since last November.
Sentiment toward the common currency was dampened on
Thursday by 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.
The Australian dollar held steady at $0.9292,
having touched a two-month low of $0.9280 on Thursday. The
Aussie dollar had fallen 1.4 percent in July against a broadly
stronger U.S. dollar.
The Aussie showed a muted reaction to surveys showing an
acceleration in Chinese manufacturing activity. A government
survey showed that activity in China's factory sector expanded
at the fastest pace in 27 months in July, while a private survey
showed that it posted its strongest growth in 18 months.
(Editing by Shri Navaratnam and Simon Cameron-Moore)