Dollar edges up in London

The dollar edged up on Thursday, having surged the previous day on strong US private sector jobs data, but there is a risk it could pull back if Friday's broader payroll numbers aren't similarly robust. A string of robust US data have driven the dollar higher and underpinned expectations that the world's largest economy would recover faster than other major economies.
The ADP jobs report on Wednesday showed a record 297,000 private-sector jobs were created in December, boosting expectations for Friday's official jobs report. US factory and services sectors' data this week has also buoyed the greenback.
The dollar index, which measures the greenback's value against a basket of major currencies, was up 0.2 percent at 80.40, a sharp turnaround from last week's 78.775 trough.
"There have been positive developments for the US economy pointing to a more sustained recovery, whereas investors remain concerned about developments in the UK and Europe," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ. The ADP report drove the dollar's 1.5 percent gain versus the yen on Wednesday, its biggest one-day rise in three months, although dollar-selling by Japanese exporters tempered gains. The dollar shed some of those gains, and was down 0.2 percent on the day at 83.11 yen.
But the dollar extended gains against the euro, with the single currency down 0.3 percent at $1.3110. Traders were focusing on a digital option at $1.3125 worth some 20 million euros set to expire at 1500 GMT. This is expected to keep the single currency in a range.
The next downside target is at $1.3080, the euro's 200-day moving average.
The single currency got a brief boost after Spanish newspaper El Pais reported that China was willing to buy about 6 billion euros of Spanish government debt.
But it barely reacted to mixed economic data that showed eurozone economic sentiment jumping in December although retail sales fell in November.
France saw a smooth auction of 8.975 billion euros worth of 10-, 15- and 20-year government bonds. While the euro is likely to struggle under the burden of rising eurozone government debt issuances in the coming months, investors will focus on the strength of forthcoming US data and whether an economic recovery in 2011 is durable or not. Crucial to that recovery is the US labour market. US payrolls on Friday are expected to show overall gains of 175,000 jobs for December, up from a 140,000 forecast prior to the ADP data.
"A number around 200,000 would likely spur profit-taking. A positive surprise of 250,000-300,000 is needed to spur the dollar higher," one London-based trader said.
Even then, the dollar's gains could be limited unless the data changes expectations for the US Federal Reserve to keep its quantitative easing in place through June. Fed Chairman Ben Bernanke is set to testify on the economic outlook before the Senate Budget Committee on Friday after the jobs report.
Sterling fell after an unexpected contraction in UK service sector output added to concerns over a fledgling economic recovery in Britain. The pound fell more than half a cent versus the dollar to trade at $1.5480, down around 0.2 percent on the day. It had shed nearly one percent on Wednesday.