* Dollar hits 5-week high vs euro, currency basket
* Dollar extends rally after strong U.S. payrolls
* Traders bet on speedier normalisation in Fed policy
(Updates prices)
By Naomi Tajitsu
LONDON, Dec 7 (Reuters) - The dollar hit a five-week high
against a currency basket on Monday, extending its rally from
Friday when strong U.S. jobs data fuelled speculation the
Federal Reserve may consider winding down its stimulus measures.
Against the euro, the dollar rallied to its highest in more
than a month after the data showing a much smaller-than-expected
loss of U.S. jobs sparked anticipation the world's biggest
economy was recovering from recession.
"The market is pricing in more concrete evidence that the
Fed will start normalising policy," said Geoffrey Yu, currency
strategist at UBS in London.
"While the Fed is not in a position to start being hawkish
on policy, it may start being less dovish."
The dollar index <.DXY>, which tracks the U.S. currency's
performance against a currency basket, rallied as high as
76.183, its strongest since early November. By 1221 GMT, it was
0.2 percent higher at 76.074.
The U.S. currency extended its rally which saw it rise 1.7
percent on Friday, its best one-day performance in a year, after
the data showed the United States shed 11,000 jobs in November,
confounding forecasts for 130,000 job losses. []
The euro <EUR=> was down 0.4 percent on the day at $1.4787.
In earlier trade it fell to $1.4757, according to Reuters data,
its weakest since Nov. 4.
Market participants said euro losses were limited as traders
suspected stop-loss orders around $1.4750. Some analysts said
the slide in the single European currency was providing a good
opportunity to buy on dips.
The euro showed little reaction to news of an unexpected
fall in German manufacturing orders during October due to weaker
export demand, with analysts saying this was partially offset by
an upward revision to September's data. []
Despite its broad gains, the dollar was down nearly half a
percent at around 90.06 yen <JPY=>, although it stayed in range
of a one-month high of 90.78 yen hit after the U.S. jobs data.
The U.S. currency remains well above a 14-year trough of
84.82 yen marked in late November on trading platform EBS.
Many in the market say the dollar's strong performance was
also due to massive unwinding of short dollar positions as the
year-end nears.
Some analysts see more room for such unwinding after
speculators increased bets versus the dollar in the week ended
Dec. 1 to the most since at least June 2008, CFTC data showed on
on Friday. []
DOLLAR POSITIONS
Despite the dollar's latest rally, some analysts said one
strong jobs report would do little to shift the view of the Fed,
which meets next week, and expectations rates will stay low for
some time may limit any lasting upside in the U.S. currency.
John Hydeskov, senior currency analyst at Danske Markets in
Copenhagen, said the Fed was unlikely to change significantly
its pledge to keep rates low for an extended period, which may
disappoint dollar bulls.
Traders will look for hints on the Fed's view of the economy
and rates when Fed Chairman Ben Bernanke and New York Fed
President William Dudley speak later on Monday.
"From a fundamental perspective, the focus will now be on
whether the strong (jobs) data lead to any shift in the Fed's
policy outlook, starting with speeches by Bernanke and Dudley
today," analysts at Barclays said in a research note.
A Reuters poll showed on Friday that dealers' expectations
for when the Fed will raise its benchmark interest rate ranged
from the second quarter of 2010 to 2012. Most saw the central
bank hiking rates by the end of Q1 2011. []
The dollar has taken a beating for much of the year on the
view that rates in the United States will stay low while those
elsewhere rise. This would increase the yield advantage of other
currencies against the dollar.
(Editing by Nigel Stephenson; Editing by Ron Askew)
