The dollar weakened against the euro on Thursday after the president of the European Central Bank indicated the ECB could raise interest rates next month, potentially narrowing the US interest rate advantage. However, risks going into Friday's October US payrolls report curbed further gains in the euro and kept major currencies trading in very narrow ranges.
Speaking after the bank left its key rate unchanged at 3.25 percent on Thursday, ECB President Jean-Claude Trichet called for "strong vigilance" in maintaining price stability, a signal that market analysts understand to mean a rate increase is in store. "Trichet met market expectations and delivered the goods by clearly telegraphing a December quarter-point rate rise," said Alex Beuzelin, senior market analyst at Ruesch International in Washington.
"But failure to provide insight on the policy outlook for early next year had the effect of capping the euro's gains. Markets are now on hold ahead of tomorrow's payrolls report," he said. The euro traded at $1.2775, up about 0.2 percent on the day. It had risen as high as $1.2785 around midday, in sight of Wednesday's 1-month high of $1.2798.
The dollar was at 117.10 yen, relatively unchanged. The dollar had fallen overnight to lows of 116.68 yen, close to 1-month lows of 116.55 set on Wednesday, after Japan's top financial diplomat, Hiroshi Watanabe, said there was no reason for the Japanese currency to weaken given that the economy was recovering.
The euro fell 0.2 percent to 149.69 yen. There was little investor reaction to US economic reports on Thursday. Factory orders rose less than expected, business productivity was flat and unit labour costs rose at a faster-than-forecast pace.
Sentiment on the dollar has been damaged in the past week by softer-than-expected US economic data. Also, the dollar's nominal yield advantage has dissipated, with the yield spread between 2-year Treasury notes and the same maturity euro zone paper at its narrowest since February 2005.
The US government's non-farm payrolls data due on Friday is expected to show 125,000 jobs were added in October, up from 51,000 in September. Alan Ruskin, chief international strategist with RBS Greenwich Capital, said jobs growth of at least 130,000 is needed to boost the dollar.
"Despite the restrained market reaction to soft US data, I think the tenor at this point still more comfortably supports selling dollar upticks than buying downticks if the data comes in close to expectations," he wrote in a note.
Comments
Comments are closed.