Dollar up on better job news

Euro

The dollar slipped at the onset of the week amid nervousness ahead of a series of U.S. indictors later in the week With a mixed bag of data raising questions about the strength of a U.S. recovery, many investors and speculators refrained from heavy bets before the U.S. employment figures.

Stronger than expected U.S. personal spending figures for July gave a brief boost to the dollar on the first trading session of the week. But gains were short-lived as markets mulled data showing a lower-than-expected rise in income and speculated on the employment report due on Friday. U.S. personal consumption climbed 0.8 percent in July, compared with a revised 0.2 percent fall in June.

The median forecast was for a rise of 0.7 percent. U.S. personal income gained at a more modest pace, expanding by 0.1 percent in July, from an increase of 0.2 percent the previous month. Markets were expecting income growth of 0.5 percent.

The government report also showed U.S. inflation was well under control. Both the price indexes for consumer purchases and core prices, two of the Federal Reserve's favourite measures of inflation, were unchanged last month.

However, midweek the greenback lost momentum and its losses against major currencies mounted after weaker-than-expected U.S. consumer confidence and regional manufacturing reports opened the door to some profit-taking. The euro rose to a session high of $1.2194 on the back of weak U.S. numbers.

The Conference Board, a private business group, said U.S. consumer confidence fell to 98.2 in August, compared with a revised 105.7 the previous month. The median forecast was 103.5. The U.S. currency gained marginally on news that an index of U.S. manufacturing activity in August fell less than some analysts had expected.

The Institute for Supply and Management reported that its August manufacturing gauge fell to 59.0 from 62.0 in July. Economists had expected an August reading of 60.0. The euro held firm after the European Central bank said it left its growth predictions for 2004 and 2005 unchanged and increased its inflation forecasts by 0.1 percentage points for both years due to higher oil prices.

The final trading session witnessed the dollar rally across the board after a widely anticipated U.S. August payrolls report showed growth largely in line with expectations as well as upward revisions to June and July jobs growth.

The government reported the U.S. economy produced 144,000 new non-farm payrolls jobs in August compared with economists' forecasts of 150,000. The unemployment rate fell to 5.4 percent from 5.5 percent in July.

July's payroll numbers were upwardly revised more than two-fold to 73,000 jobs and June job creation was bumped up 96,000 new jobs from 78,000 originally. The dollar, which had been on a holding pattern all week, took off on the news testing a high of $1.2081 against the euro.

The relatively solid jobs appeared at least momentarily to settle the market's concerns for now over the durability of the U.S. economic recovery and the pace the Federal Reserve intends on taking in raising official interest rates. The Federal Reserve has already raised rates twice since late June but, at 1.5 percent, U.S. rates are still half a percentage point below euro zone rates.

Federal Reserve Chairman Alan Greenspan's testimony on Capitol Hill midweek will be the main draw for global financial markets next week, especially in the absence of significant data either side of the Atlantic.

The testimony will meet its first test on Wednesday, when $15 billion of interest rate sensitive five-year treasury notes are auctioned at 1700 GMT. A $9 billion auction of 10-year U.S. debt will follow on Thursday.

Amongst other highlights of the week in the United States, will be U.S. producer prices and trade data, both on Friday. August PPI are forecast to have risen by 0.1 percent, at the same rate as in July. The U.S. July trade balance is expected to come in at $51 billion, compared with a gaping 55.8 billion in June.

Range for the week: $1.1900 - $1.2200.

Japanese Yen

The greenback rose against the yen in the wake of weak Japan's output data. Japanese industrial production in July was flat from the previous month, worse than the median forecast of a 1.0 percent gain.

While the data supported those who think Japan's economic growth will slow sharply early next year, its impact on the yen did not last long, with others sticking to the view that any slowdown will be temporary.

However easing oil prices, meanwhile, helped the yen withstand weak data from the world's second-biggest economy. Crude prices for October delivery traded around $42.15 a barrel, more than $7 below the record peak of $49.40 set earlier this month.

Dollar/yen trading has been anchored around 109.50 levels for the past two weeks, with markets focusing on which direction the U.S. currency would branch out after the jobs data is released.

Infact, the dollar rose broadly spurred by the U.S. August payrolls report, which showed an unexpected dip in the unemployment rate and confirmed market expectations of a dollar-boosting interest rate hike in September.

The dollar edged up against the yen to about a two-week high of 110.60 yen, a gain of 1.02 percent. Analysts believe the dollar's direction will be clearer next week when Fed chief Alan Greenspan testifies before Congress on the U.S. economy.

Range for the week: 109.00 - 112.00

Sterling

The pound dipped to its lowest level in more than three months against the euro and the dollar after UK manufacturing and housing data showed weaker than expected growth.

Reports from the retail sector and loan approvals for the house purchases released also indicated higher rates are starting to take effect on homebuyers and consumers.

Signs Britain's economy is slowing have weighed heavily on the pound in recent sessions, reinforcing the view that UK interest rates are nearing a peak. The bank has raised borrowing costs five times since last November, bringing benchmark interest rates to 4.75 percent.

The BoE meets next week to discuss monetary policy, but many expect the bank to wait until November to raise interest rates.

Range for the week: $1.7650 - 1.7950