FOREX-Dollar rallies vs euro on US jobs data; Fed ahead

Sat Dec 8, 2012 12:28am IST

* U.S. non-farm payrolls rise by 146,000 in November
    * Euro extends post-ECB fall; Germany cuts growth outlook
    * Yen briefly strengthens after Japan earthquake

    NEW YORK, Dec 7 (Reuters) - The dollar rose against the euro
on Friday for a third consecutive day after the release of
better-than-expected U.S. employment data, but the less
encouraging details are expected to limit the currency's gains
ahead of a Federal Reserve policy meeting next week.
    The dollar had soared immediately after the headline data
for November stoked speculation that the U.S. central bank may
opt for a smaller stimulus program. But it pared gains against
the euro and turned slightly lower against the yen as traders
scrutinized the components of the report.
    While nonfarm employment increased by 146,000 jobs last
month, showing little apparent impact from Superstorm Sandy, job
growth for previous months was revised downward and a drop in
the jobless rate to a near four-year low was due to jobseekers
giving up the search for work. 
    "There's a lot of speculation on how much impact Sandy has
on the data. The number just feels wrong," said Ronald Simpson,
managing director of global currency analysis at Action
Economics in Tampa, Florida. "That's why we've seen things come
unwound back to pre-data levels because everybody is going to
look ahead and wait for the revisions."
    The euro fell to a session low of $1.2878 according
to Reuters data, matching the low set on Nov. 28. It was last
trading down 0.3 percent on the day at $1.2932.
    Some $5.5 billion of euros changed hands, according to
Reuters Dealing.
    The common currency pared losses in trade before midday,
with traders citing a news report that said senior European
Central Bank Executive Board members - including President Mario
Draghi and Bundesbank President Jens Weidmann - opposed a rate
cut supported by the majority at the ECB's most recent policy
meeting on Thursday. 
    "Whether this reduces the likelihood of a cut going forward,
the forex market perceives a more hawkish than dovish stance and
created significant short covering," said Andrew Wilkinson,
chief economic strategist at Miller Tabak & Co LLC in New York.
    Weakness in the euro came as Germany's central bank said it
expected Europe's largest economy to grow just 0.4 percent in
2013, and pointed to risks of a recession as the euro zone debt
crisis takes its toll. 
    The euro lost 0.8 percent against the dollar on Thursday
after ECB President Mario Draghi said policymakers had discussed
cutting borrowing costs and slashed growth and inflation
forecasts for the euro zone.
    ECB policymaker Jozef Makuch also said the bank may cut
interest rates next year if the euro zone economy does not
improve. 
    "The euro is still pricing in the earlier than expected rate
cut talk that came out of yesterday's ECB press conference,"
said Marc Principato, Director of SMB Forex Trading and
Education in New York. "If 1.2985 cannot be broken to the upside
in the next day or two, I believe a test of the 1.2850 support
is more likely in the coming week."
    Attention now turns to the U.S. Federal Reserve, which
begins a two-day meeting on Tuesday. Policymakers are expected
to maintain support for the tentative U.S. recovery by ramping
up one bond-buying program to offset the expiration of another.
    "The real question is whether (the November jobs data)
changes the Fed's attitude toward more stimulus. It doesn't
remove the need for stimulus but might convince the Fed to opt
for a smaller program," said Kathy Lien, managing director of BK
Asset Management in New York.
    Fed stimulus is viewed as negative for the dollar because it
equates to printing money, which lowers U.S. bond yields and
diminishes the appeal of holding dollar-denominated assets.
    The dollar rallied as high as 82.82 yen on Reuters
data, matching a near eight-month high set on Nov. 22. It was
last trading at 82.37 yen, near flat on the day. 
    The yen briefly rose against the euro and dollar after news
of an earthquake in Japan. A far more powerful earthquake in
March 2011 led to a sharp rise in the yen on expectations
Japanese investors would repatriate funds held abroad.
    Investors also closely watched developments on the U.S.
"fiscal cliff" debate.
    Republican House Speaker John Boehner accused U.S. President
Barack Obama of pushing the country toward the fiscal cliff on
Friday and of wasting another week without progress in the
talks.
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