(Adds details, updates prices)
By Lucia Mutikani
NEW YORK, Jan 7 (Reuters) - The dollar rose on Monday as
dealers speculated that growing inflationary pressures could
prevent aggressive Federal Reserve interest rate cuts despite
surprisingly weak jobs growth in December.
News on Friday that the United States' unemployment rate
jumped to 5 percent last month, a two-year high, sparked talk
of a recession and prompted some institutions to call for the
benchmark fed funds rates to be slashed by 50 basis points to
3.75 percent later this month.
But analysts said inflation concerns would likely see the
Fed opt for a quarter point cut when it meets on Jan. 30,
giving the dollar some respite for the day.
"Inflation is becoming a more important issue ... it might
limit how many times they (Fed policy-makers) might continue
cutting rates," said Matthew Strauss, senior currency
strategist at RBC Capital Markets in Toronto.
"We are still looking for 50 basis points in the first
quarter. Because of the underlying inflationary pressures, it
would be difficult for the Fed to go much beyond that except if
the economy slows down significantly."
In late New York trading, the dollar index <.DXY> was up
0.4 percent on the day at 76.175 after falling as low as 75.429
on Friday. The dollar rose 0.6 percent to 109.19 yen <JPY=>,
but off a session peak of 109.74, amid volatile swings on the
stock market.
Analysts said there was also a reluctance to continue
selling the dollar, regardless of poor economic data, because
the dollar's decline appeared close to bottoming out.
The euro appreciated almost 10 percent against the dollar
in 2007. The euro fell 0.4 percent to $1.4688 <EUR=> on Monday,
while the pound recovered from 4-1/2-month lows of $1.9654 to
still trade down 0.1 percent at $1.9697 <GBP=>, thanks to a 0.3
percent fall in the euro versus sterling to 74.58 pence
<EURGBP=>.
Reports that five Iranian boats harassed U.S. Navy ships
in the Strait of Hormuz at the weekend saw the dollar attract
some safe-haven flows. The dollar also firmed against the Swiss
franc, rising 0.8 percent to 1.1166 Swiss francs <CHF=>.
Federal Reserve Bank of Atlanta President Dennis Lockhart
on Monday cautioned against overreacting to December's jobs
report, adding he was concerned about inflation and equally or
more worried about slower growth. Lockhart is not a voting
member this year.
Treasury Secretary Henry Paulson tried to allay fears of a
recession saying the U.S. economy would continue to grow
despite the housing downturn, while President George W. Bush
called on Congress to make permanent the tax cuts enacted
during his administration that are set to expire in coming
years.
Attention this week will focus on Fed Chairman Ben
Bernanke's speech on Thursday as well as the European Central
Bank and Bank of England meetings.
Both central banks are expected to keep interest rates on
hold on Thursday at 4 percent and 5.5 percent, respectively,
although the BoE decision will be an extremely close call.
"Traders generally want to see how exactly hawkish the ECB
will be this Thursday and how much pressure the Fed will have
to cut rates by a full 50 basis points," said Boris
Schlossberg, senior currency strategist at DailyFX.com in New
York.
UK rates futures are attaching around a 45 percent chance
the central bank will cut rates 25 basis points, which would
likely weigh on sterling.
(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by
Andrea Ricci)
