Currency news - Dollar waits for payroll evidence

Dollar waits for payroll evidence - 03-08-07

Speculation over a late-2007 Fed interest rate cut has already increased and this should help protect the dollar from heavy selling pressure unless the employment data is very weak.

The dollar was unable to strengthen through the 1.3650 level on Thursday and weakened back to test the 1.37 level in New York. Volatility levels were slightly lower and the US currency received less support from defensive inflows as risk appetite strengthened slightly.

There was little in the way of US economic data on Thursday, but jobless claims were again lower than expected at 307,000 in the latest week which should underpin confidence in the Friday payroll report, although there will still be unease following the weaker than expected ADP report.

Given the existing growth doubts and fears surrounding the housing sector, the dollar will be vulnerable in the event of a weak employment report on Friday, especially if the monthly increase is below 70,000. The impact should be measured given that markets are already close to pricing in an interest rate cut by the end of 2007 and, given lower market expectations, the US currency is now in a better position to gain ground on a strong report.

Tim Clayton
Investica Ltd
E-mail: tim.clayton@investica.co.uk
+44 (0) 1452 781001

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