The dollar was steady against the euro and yen on Friday, with trading volume sapped by a Japanese public holiday and investor reluctance to make big bets ahead of a key US employment report.
The yen rose fleetingly after China's central bank said it had raised bank reserve requirements by half a percentage point, while the Canadian dollar jumped against the greenback after a fall in Canada's jobless rate.
In recent sessions a run of softer than expected US economic data has sent the dollar to one month lows versus the euro and yen and to two-month lows against sterling amid concern that slowing economic growth could lead the Federal Reserve to cut interest rates soon. Any weakness in October US non-farm payrolls - due at 1330 GMT - could hurt the dollar further.
"If we get around 90,000 new jobs in October we could see the dollar testing $1.2850, and we would probably need an even lower number to see euro/dollar breaking out of the range we've had for the past couple of months," DRKW strategist Niels From said. The median forecast is for a net rise of 125,000 in non-farm payrolls in October but the latest derivatives auction on the data shows the market is betting on something nearer 99,500. Some analysts expect an upward surprise, however, citing a robust employment component in the US Institute for Supply Management's October manufacturing report and a rise in the ADP National Employment index.
By 1247 GMT, the euro was steady on the day at $1.2770, stopping short of Wednesday's one-month peak near $1.28, where some traders have reported options barriers. The dollar was steady at 117.16 yen, about half a yen above the one-month lows hit earlier this week. The dollar was down 0.35 percent on the day versus the Canadian dollar after economic growth in resource-rich Alberta lowered Canada's unemployment rate to 6.2 in October.
The yen spiked briefly higher after China raised commercial banks' reserve requirements on Friday for the third time in five months to soak up more of the money gushing into the banking system from the country's huge balance of payments surplus. The People's Bank of China said on its Web site (www.pbc.gov.cn) that it was increasing the proportion of deposits that banks must hold in reserve at the central bank by 0.5 percentage point, effective from November 15.
"The Chinese authorities are taking steps to try to slow the pace of economic activity, the market had expected this," BOTM-UFJ currency economist Derek Halpenny said.
"I do not think there is any need for China to change the renminbi trading band - you can see the pace of appreciation over the last few months, it's close to the Bank of China's tolerance level." The euro got a small boost on Thursday after the European Central Bank, as expected, held rates at 3.25 percent and signalled it would tighten policy in December. But market reaction was limited as ECB President Jean-Claude Trichet declined to comment on the monetary policy outlook for 2007.
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