It News: Dollar Gains on Euro and Yen on ADP Job Data

August 1, 2012

Dollar Gains on Euro and Yen on ADP Job Data

By: Reuters
Published: Wednesday, 1 Aug 2012

The dollar gained against the yen and euro on Wednesday as data showed the U.S. private sector added more jobs than expected in July.
The dollar [JPY= 78.21 0.10 (+0.13%) ] rose to 78.19 yen from 78.10 yen before the data. The U.S. currency was up 0.1 percent on the day.

The euro [EUR= 1.2313 0.001 (+0.08%) ] last traded at $1.2287, down from the $1.2307 it traded at before the report and down 0.1 percent from the prior New York close. The move lower in the euro began in the minute before the data's release.

"ADP has a poor correlation with non-farm payrolls but that won't stop positive anticipation for Friday's job report based on today's better than expected number," said Joseph Trevisani, chief market strategist at Worldwide Markets, Woodcliff Lake in New Jersey.

Investors are gearing up for possible European Central Bank action on Thursday to tackle the region's debt crisis, but they are also mindful of the risk of disappointment. Bank President Mario Draghi last week boosted the euro and riskier assets by pledging to do everything necessary to preserve the euro.

Analysts said this made many wary of taking a strong position and was likely to keep the euro trapped in a tight range against the dollar.

Before then, a U.S. Federal Reserve policy decision is due Wednesday night. Analysts expect the Fed will stop short of announcing aggressive measures to tackle a weak economy but nevertheless to signal it is ready to act.

The single currency was supported above Monday's low of $1.2225 but remained below a three-week peak of $1.2390 struck after Draghi's comments last week, which raised expectations the ECB might resume its bond purchase program, lowering borrowing costs for Spain and Italy.

"If the ECB come up with something very clear-cut we could see a position squeeze (higher) in the euro, depending on how much detail Draghi gives at the press conference," said Ankita Dudani, currency strategist at RBS. She added that the risk of a positive outcome from the ECB or a disappointment were about 50/50, which was likely to keep trade in euro/dollar quite muted.

Investors were wary of stiff German opposition to either a resumption of ECB bond-buying or granting a banking license to the euro zone's rescue fund to increase its firepower. Many analysts and traders say the impact of any ECB's action would in any case be temporary without a sustainable economic recovery in battered southern Europe.

Weak economic growth and record high joblessness across the euro zone is likely to keep alive chances of more interest rate cuts by the ECB in the near term, keeping sentiment towards the euro bearish.

Euro zone data painted a gloomy picture for the region, with a business surveys on Wednesday showing the region's manufacturing sector contracted for an 11th successive month.

FOMC Awaited

Support for the euro from Middle-East investors capped the dollar index, which was down 0.1 percent at 82.572, hovering above a near four-week low of 82.343 hit last week.

Across the Atlantic, traders will keep an eye on the ADP employment report for July, but the main highlight will be the Fed's statement where it is likely to mark down expectations for growth but hold back from further easing.

"We think if the Fed indicates a wait-and-see approach it could lead to some disappointment and would weigh on the euro/dollar," said Adam Myers, senior currency strategist at Credit Agricole.

He added even if the Fed surprised and announced fresh measures, likely disappointment from the ECB on Thursday would cap any gains in the euro.

The growth-linked Australian dollar [AUD= 1.0512 0.0012 (+0.11%) ] shrugged off weak Chinese official factory purchasing managers' index to rise to a four-month high against the U.S. dollar of $1.0543, with traders citing option barriers at $1.0550.

Analysts said growth-linked currencies are likely to be supported by diversification flows from central banks. Reflecting that, the Swedish crown hit a 12-year high against the euro of 8.2985.