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Dollar climbs vs. euro, currency basket on ADP and Draghi

Posted by Joseph Trevisani on Sep 5, 2013 2:57:00 PM

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NEW YORK | Thu Sep 5, 2013 9:43am EDT

(Reuters) - The dollar rose to a six-week peak against the euro on Thursday after European Central Bank President Mario Draghi said the bank's Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period.

Earlier, the bank left its main interest rate unchanged at a record low of 0.50 percent on Thursday, as recent economic data has shown a nascent recovery taking hold in the euro zone.

"The most important take away from Draghi's initial remarks is that he has reiterated the forward guidance that rates will remain this low or lower for an extended period," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.

The dollar was also strong ahead of data that could firm up the case for a cut in U.S. stimulus from this month. U.S. private employers added 176,000 jobs in August, nearly matching economists' expectations for the month, a report by a payrolls processor showed on Thursday.

"The ADP correlation to payrolls is moderate at best, but the psychological attachment is strong. The market is already expecting the quantitative easing train to slow in two weeks, today's ADP result offers modest reinforcement to that view," said Joseph Trevisani, chief market strategist at WorldWideMarkets, Woodcliff Lake in New Jersey.

The dollar index .DXY was up 0.3 percent at 82.396, not far from a six-week high of 82.516 hit on Tuesday. The euro was down 0.3 percent at $1.3154 after earlier falling to a six-week low of $1.3128.

The single currency failed to gain support from a recent run of encouraging economic data.

Earlier, sterling was supported after the Bank of England announced no changes to interest rates or its bond-buying program and made no further statement on policy.

The main focus, however, is on the U.S. nonfarm payrolls report, due out on Friday.

If that data confirms a continued recovery in the job market, it will be seen as sufficient for the Federal Reserve to decide at its September 17-18 meeting to start reducing its bond-buying program.

Expectations that the Fed will be the first major central bank to hike rates have underpinned the dollar.

"After all the major central banks are done today the FX shift would firmly return to the U.S. dollar on Friday. There is a lot hinged on the non-farm payrolls data," said Neil Jones, head of hedge fund FX sales at Mizuho Corporate Bank.

"If the number is around 200,000 the dollar will go higher. Our dollar forecasts for the next few months are quite upbeat as the Fed is going to taper this year."

The dollar tested the 100 yen level, marking a six-week peak for the currency pair. It was last up 0.11 percent at 99.87 yen.

Traders said the yen suffered as investors unwound their safe-haven buying, spurred by concerns over a U.S. plan to attack Syria, while moving little after the Bank of Japan maintained policy as expected.

"It seems like the market is tentatively concluding that any military action may not last that long and its impact on the world economy will be limited. The market is coming back to business as usual," said Bart Wakabayashi, head of forex at State Street Global Markets in Tokyo.

(Reporting by Nick Olivari; Editing by Bernadette Baum)



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