NEXTUP-Dollar may shrug off Friday's goverment job report
NEW YORK, Jan 7 (Reuters) - The U.S. dollar can withstand further evidence of U.S. job losses at a break-neck pace and any positive surprise may spark a rally in the greenback.
The dollar pushed back from nearly one-month highs against the euro and five-week peaks versus the yen on Wednesday after data showed steeper-than-expected job losses in the U.S. private sector.
But while a dismal reading on private sector payrolls from ADP Employer Services signaled further weakness in the non-farm payrolls data due on Friday, analysts said the forex market now has factored in the sharp job losses.
The U.S. dollar may actually jump in the event of a reading in line with or even slightly better than expectations.
In Wednesday's ADP data -- often taken as gauge for the more comprehensive Labor Department's report -- private employers shed 693,000 jobs in December, up from 476,000 jobs in the prior month and far more than economists estimated. For details, see [ID:nWEN2275]
"What the report has done is remove the shock value of any negative surprise on Friday," said Michael Woolfolk, a senior currency strategist at The Bank of New York Mellon. "What players must now consider is that non-farm payrolls could surprise well to the upside on Friday, sending the dollar higher."
The latest Reuters poll shows economists' consensus expectation for Friday's report is for 500,000 job losses in December. But some banks have already revised their forecast for Friday's employment report. Wells Fargo Bank said in a note it now sees at least 600,000 job losses.
Despite the revision in some forecasts, Meg Browne, a currency strategist at Brown Brothers Harriman in New York, also expects limited dollar reaction to the data.
"By now, we all know Friday's labor report is going to be pretty bad and I don't see the dollar moving much on more bad news," she said. "A better reading, though, could spark a little rally."
Browne said key trading levels in euro/dollar within the next couple of days would be 1.3590 and 1.3840.
In afternoon trading in New York, the euro was 1.3 percent higher at $1.3677 EUR=, recovering from near one-month lows on Tuesday, according to Reuters data. The ICE Futures' dollar index, which measures the dollar's value against a basket of six major currencies, fell 1.1 percent to 81.880 .DXY.
Last year, the dollar rose about 6 percent against a basket of major currencies, its best performance since 2005, because investors saw it as the ultimate safe haven in the worldwide financial crisis.
As the U.S. Federal Reserve cut rates to near zero the currency lost some of its appeal, although the dollar has risen since the beginning of 2009.
"Aside from the the payrolls report, we have other important events such as the ECB and the Bank of England's rate meetings, which may actually have a bigger impact on the dollar right now," Browne added.
The Bank of England is expected to cut its benchmark interest rate by at least 50 basis points on Thursday and signal that it will soon join the Federal Reserve and Bank of Japan and adopt a zero interest rate policy to stimulate growth. Continued...
