3 May 2001, 15:36 Forex: Dollar holds firm tone in midday London trade ahead of U.S. payrolls
LONDON (AFX) - The dollar held a firm tone in midday trade amid a
lack of fresh news, ahead of tomorrow's crucial U.S. nonfarm payrolls
figures for April, dealers said.
Steve Hannah, chief economist at National Australia Bank, is of
the opinion that the dollar remains at relatively expensive levels, not
far away from a 15-year high in terms of the trade-weighted level.
He said: "Tomorrow is critical because I think the risks are skewed
towards a bad payrolls figure."
"If we get a particularly weak figure, and by applying the logic
applied recently that the dollar should weaken on good news, does that
mean that on a bad payroll number we should buy the dollar?"
"I think many would hesitate, which leads us to the conclusion that
the dollar goes down on good news but does not go up on bad news. It's
a bit of a lull before the storm," he said.
He further pointed to today's Organisation for Economic Cooperation
and Development's preliminary economic outlook report which reiterated
the optimistic view about the U.S. economic rebound.
"The market is feeling a little bit more comfortable about the U.S.
economic situation, which is prompting some movement out of the U.S.
dollar into slightly riskier but high-yielding alternatives," said
Hannah.
He added: "If the U.S. economy does rebound in the second half of
the year it is good news for the world economy and that means we can
more safely dip into other currencies that are cheaper alternatives to
the greenback."
Today's euro zone figures had little impact on the single European
currency, which dropped below the 0.89 usd level, dealers said.
Hannah said: "The euro is treading water until the U.S. nonfarm
payrolls data tomorrow. The data is giving an impression that although
the euro zone is down, it is not slowing down at a pace which would
alter the European Central Bank's monetary policy at this stage."
Unemployment in the euro zone fell to 8.4 pct in March from a
revised 8.5 pct in February, while economic sentiment indicator fell to
102.1 in April, from 102.3 in March.
Sterling was also marginally lower on a weaker-than-expected
service data, dealers said.
The UK Chartered Institute of Purchasing and Supply reported that
its service sector Business Activity index fell to a seasonally
adjusted 51.2 in April from a downwardly revised 55.7 the previous
month.
"The market accepts that the weakness in the figure is a temporary
issue to do with foot and mouth, stripping that factor out the service
sector is holding up reasonably up."
Trading activity on the yen was muted due to the effective closure
of the Japanese market for Golden week holiday.
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