FX OUTLOOK-Dollar may fall as investors await data

By Vivianne Rodrigues

NEW YORK, March 28 (Reuters) - The U.S. dollar is likely to remain under pressure next week as investors brace for another set of data that may confirm the U.S. economy is sliding into recession.

The dollar see-sawed this week and recovered some losses mostly against the Japanese yen as trading in the world's stock markets stabilized and a key U.S. income indicator came in higher than expected, briefly easing some pressure for further interest rate cuts by the Federal Reserve.

Still, other reports earlier in the week showed consumer confidence in the United States in March slid to its lowest in five years, while expectations for the future dropped to their lowest level in 34 years as conditions in the housing and labor markets deteriorated.

Next week markets will focus on the March non-farm payrolls report in particular, and manufacturing data.

"In the big scheme of things, the dollar will remain under pressure as long as the central bank keeps cutting interest rates," said Mark Meadows, a market analyst at Tempus Consulting in Washington D.C. "In the short term, stocks will play an important part in the dollar's outlook."

In early afternoon trading on Friday in New York, the euro inched lower, or 0.1 percent, to $1.57547 EUR=, but still within sight of last week's historic peak at $1.5904. The dollar was little changed against the yen, at 99.50 JPY=.

European Central Bank Governing Council member Axel Weber said on Friday price pressures in the region were alarmingly high, which strengthened the view that the ECB is unlikely to cut rates any time soon.

"The fact that ECB officials are staunchly reiterating the suitability of the current level of interest rates when the euro is at record highs suggests very little about a sharp retreat in the currency any time soon," said CMC Markets' Ashraf Laidi. The euro/dollar "is expected to maintain its consolidation within the $1.5760-$1.5860 range, but U.S. consumer weakness is likely to test the 1.5865-70 resistance."

In its accompanying statement after it slashed benchmark interest rates by 75 basis points to 2.25 percent earlier this month, the Fed said it would keep a wary eye on prices and expressed concern that inflation might not decline as expected.

LABOR DATA IN FOCUS

In terms of U.S. economic data, currency analysts say the market focus next week will be on the March non-farm payrolls report on Friday for clues on the health of the labor market. The U.S. economy likely shed 50,000 jobs last month, after a 63,000 drop in February, according to the latest Reuters poll. For details, see: [ECI/US].

"The payrolls report is definitely the highlight of the week, and if it comes in weak, it will be another 'crusher' for the dollar," Meadows at Tempus said.

The U.S. economy is already in a recession, according to economists at Goldman Sachs, who base their argument on the unemployment rate.

The rate "has averaged 4.9 percent over the past three months," they said in a note to clients. "Labor market deterioration, coupled with weakening home and equity prices, point to a lull in domestic spending, both by consumers and businesses."

Other economic reports slated for release next week include the Chicago PMI business activity index for March on Monday with a manufacturing indicator to follow on Tuesday. A reading on the labor market for private employers is also on tap for Wednesday as well as the release of factory orders for February.

Analysts will also keep a close eye on the global financial sector, especially in the wake of Bear Stearns' near collapse earlier in the month. More indications of troubles at U.S. banks could weigh on the dollar as well. (Reporting by Vivianne Rodrigues; Editing by Tom Hals)