Dollar edges up in London

The dollar edged up against major rivals on Wednesday with investors unwilling to push it to new record lows without fresh impetus from soft US data. Weak readings from the Institute for Supply Management's index of service sector activity at 1500 GMT and US non-farm payrolls on Friday could prove just such catalysts, bolstering the case for more sharp, growth-boosting interest rate cuts.
"We are at very elevated levels so if we don't see constant negative news flow in respect to the dollar, euro/dollar will edge lower," said Michael Klawitter, currency strategist at Dresdner Kleinwort in Frankfurt. Against a basket of six major currencies, the dollar was up 0.2 percent at 73.828, while the euro was down 0.3 percent at $1.5157 - but still fairly close to this week's record $1.5275.
However Klawitter said the euro could come under pressure on Thursday, if European Central Bank president Jean-Claude Trichet sounds a less hawkish note at a news conference after a rates decision which is widely expected to leave rates on hold at 4 percent.
"The data from the eurozone was not really supportive ... and the risk is clearly that tomorrow Trichet will take a slightly less hawkish tone and that will fuel market speculation that a rate cut in May or June is still on the cards," he said.
The dollar was up 0.3 percent versus the yen at 103.70 yen, holding gains after a boost from US stocks on Tuesday following a report that a deal to rescue ailing bond insurer Ambac Financial Group was near.
The dollar has fallen roughly 5 percent against the yen and around 3.5 percent versus the euro in the past week, and analysts say more pain could be on the cards. The ISM's non-manufacturing index is expected to produce a reading of 47.0 in February, above January's 44.6 but still below the level of 50 that separates expansion from contraction.
That would be "a rebound from a disastrous January outcome but still in recession territory and consistent with a dovish rate outlook," CIBC World Markets said in a research note. "Basically, more dollar bear news."
The employment component of the ISM index as well as the ADP report on private sector jobs at 1315 GMT will be scoured for clues on the likely reading of Friday's non-farm payrolls.