* Euro struggles after ECB's surprise cut, French downgrade
* Traders cautious about dollar before U.S. jobs data
* In-line reading could see dollar give up recent gains
By Anirban Nag
LONDON, Nov 8 The euro fell for a second day on
Friday, hurt by the European Central Bank's surprise interest
rate cut and a downgrade to France's credit rating, while the
dollar inched up before a key U.S. jobs report.
A strong non-farm payrolls report would increase
expectations the Federal Reserve will start tapering its bond
buying programme sooner rather than later, particularly after
Thursday's robust U.S. growth figures. But many are cautious
about buying the dollar given the risk of a soft jobs reading
due to last month's 16-day government shutdown.
That could see the dollar index give up some of its
gains, having hit a near two-month high of 81.46 on Thursday. A
dip in the dollar would also offer a reprieve to the euro
which is on track for its second week of losses.
"An in-line reading for the U.S. jobs number will see the
dollar come off," said Neil Mellor, currency strategist at BNY
Mellon. "A better-than-expected number will give the dollar a
boost, but recent commentary from the Fed suggests that they are
not in a hurry to withdraw stimulus."
Economists polled by Reuters estimate the unemployment rate
rose to 7.3 percent in October while non-farm payrolls grew by
125,000 jobs. The payroll figure is likely to show some impact
from the partial government shutdown.
Against the dollar, the euro was down 0.1 percent at $1.3408
, having hit a seven-week low of $1.3295 on Thursday. The
euro was also hit in Asian trade after Standard & Poor's
downgraded France's credit rating to AA from AA+.
The euro had fallen sharply on Thursday after the ECB cut
borrowing costs to a record low of 0.25 percent and said it
could reduce further to prevent the euro zone's recovery from
stalling following a sharp drop in inflation.
"Given the ECB's view of a prolonged period of low
inflation, any further slowing in CPI will raise the threat of
negative deposit rates - which will be a big negative for the
euro," said Chris Turner, chief currency strategist at ING.
"And even the taboo subject of QE from the ECB could be
brought into discussions."
Indeed, money markets and the currency options market are
showing signs that the euro will grind lower in the near term as
it loses its yield advantage over other major currencies.