June 5, 2013 / 5:45 PM / 5 years ago

FOREX-Dollar skids as soft U.S. private jobs data spurs caution

* ADP report weaker than expected, weighs on dollar
    * U.S. service sector data shows weak employment index
    * Japan PM's growth strategy disappoints markets
    * Focus firmly on Friday's U.S. jobs data

    By Julie Haviv
    NEW YORK, June 5 (Reuters) - The dollar fell broadly on
Wednesday as reports showing weaker-than-expected U.S. private
employment growth last month and a modest rise in factory
activity lowered chances the Federal Reserve may wind down its
stimulus program any time soon.
    The U.S. currency had risen in recent sessions on the view
that the run of upbeat economic data over the last month could
prompt the Fed to taper its $85 billion per month quantitative
easing program, a mechanism viewed as negative for the greenback
as it is tantamount to printing money. 
    But the moderate pace of hiring seen in May's private-sector
jobs report and the decline in the employment index of a U.S.
services sector report may prevent the Fed from paring back the
scale of its QE stimulus policy. 
    The Federal Reserve's Beige Book, due to be released at 2
p.m. (1800 GMT), could provide clues to whether the Fed is
moving closer to reducing its monthly bond purchases.
    Earlier in the session, the ADP National Employment Report
showed that U.S. private employers added fewer jobs than
    The ADP report was followed by the non-manufacturing survey
of the Institute for Supply Management, which indicated that its
employment index fell to its lowest since July 2012. However,
investors were more focused on the government's broader U.S.
jobs data for May to be released on Friday. 
    The ISM data "sits with our current view that the labor
market is unlikely to match earlier-in-the-year gains that could
spur a tapering of Fed policy," said Andrew Wilkinson, chief
economic strategist at Miller Tabak & Co in New York.
    The U.S. dollar fell as low as 98.95 yen in early afternoon
North American trading as investors sought the safety of Japan's
currency amid a general retreat from risky assets.
    Wall Street stock indexes traded sharply lower, while U.S.
Treasuries gained smartly as nervousness prevailed ahead of the
Labor Department's nonfarm payrolls report, which some fear
could disappoint following the softer-than-expected ADP data.
    The dollar last traded at 99.28 yen, down 0.7
percent. The greenback has weakened in five of the past six
sessions versus the Japanese currency and traded below its
50-day moving average twice this week.
    Some analysts are convinced the Fed could start reducing its
asset purchases at the end of the year and the
softer-than-forecast ADP number has not altered their view.
    Dean Popplewell, chief currency strategist at forex broker
OANDA in Toronto, noted that over the last 10 months, the ADP
number was below the U.S. payrolls figure eight times, missing
estimates by about 37,000 jobs. 
    "There's a wide variance between the ADP number and the
actual payrolls figure, so I don't think we would see changes in
jobs forecasts for most banks," Popplewell said. "And I don't
believe the ADP would change the Fed's tapering plan if that is
in the works."
    Earlier in the day, the yen gained traction after a pledge
by Japanese Prime Minister Shinzo Abe to raise incomes
disappointed markets due to a lack of detail. His comments
weighed on Japanese shares. Stocks in Europe 
also fell.  
    Dollar/yen at 98.60 could provide important support,
according to David Rodriguez, quantitative strategist at DailyFX
in New York. 
    "We'll nonetheless look for signs of potentially substantial
market panic as a key reason to sell the dollar/yen, and indeed
that remains our favorite trade in the week ahead," he said. "It
feels like markets are on the verge of something huge." 
    The euro, meanwhile, last traded up 0.1 percent at $1.3088
, not far from the session high above $1.31 reached after
the U.S. private-sector jobs report. 
    Investors overall were wary before a European Central Bank 
decision on Thursday. The ECB is expected to leave interest
rates unchanged, but weak data on euro zone services sector
activity suggested an economic recovery was some way off and
kept alive the chances of further easing.
    The Australian dollar fell to its lowest in more than 1-1/2
years against the greenback as traders broke through an options
barrier on the downside a day after the Reserve Bank of
Australia left the door open for more easing.
    Traders said market participants broke through the barrier
at US$0.9525. The low on the Aussie was posted at US$0.9509
, its weakest level since October 2011. The Aussie dollar
last traded at US$0.9522, down 1.3 percent.
    On Tuesday, the RBA held rates steady at 2.75 percent but
said it could ease again.
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