Dollar falls back as jobs data looms
The dollar weakened as London markets opened on Friday ahead of crucial employment data that was expected to set the tone for the US economy and the likelihood of further monetary easing by the Federal Reserve.
The euro clawed back earlier losses against the dollar, rising 0.2 per cent to $1.2204.
The single currency had fallen to a session low of $1.2167 in Asian trading after investor disappointment with the European Central Bank the previous day.
Contrary to many hopes, the ECB made no firm plans to start buying government bonds in the eurozone’s troubled peripheral nations, stating that it would consider such action only after politicians applied to the eurozone’s bailout funds for aid.
But the US dollar lost some of its gains on Friday morning ahead of US non-farm payrolls due to be announced at 1.30pm London time, with expectations for a rise of 100,000 jobs in July.
Currency analysts said the dollar was likely to strengthen on haven demand if the payroll figures were significantly lower than expected. But the dollar was also expected to rise if the figures were much higher than expected, as signs of a stronger US economy would lessen the case for further monetary easing from the Federal Reserve.
“With the FOMC statement hinting at QE3 if the data remain weak, better data today will give the dollar a notable boost,” said Derek Halpenny, analyst at Bank of Tokyo-Mitsubishi.
The Japanese yen continued to strengthen amid global investor uncertainty about whether central banks in Europe and US were likely to take action to restore confidence. The yen hit a session high of Y78.06 against the dollar, very close to the Y78 level at which the Bank of Japan was widely believed to have verbally intervened in the currency markets at the start of June.
“Both economic and political conditions have increased the probability that Japanese officials introduce new measures, including forex intervention, to weaken the yen in the near future,” said analysts at Morgan Stanley.