By Eric Burroughs
TOKYO, May 2 (Reuters) - The dollar was steady near a
two-month high against a basket of major currencies on Friday
after U.S. data reinforced expectations the Federal Reserve will
keep interest rates on hold for a while.
Reports the previous day showing that manufacturing activity
shrank less than expected in April and consumer spending rose in
March assuaged investor worries about the depth of any U.S.
economic recession.
A pull-back in gold and oil prices from record peaks has also
given the dollar a boost because those commodities historically
tend to move in the opposite direction of the U.S. currency.
Market players are now awaiting the monthly U.S. payrolls
report later in the day to see if the labour market is also doing
better, which would cast more doubts on the prospect of another
Fed rate cut and give the dollar a shot in the arm.
In a Reuters poll, economists forecast a drop of 80,000 jobs
last month and a rise in the unemployment rate to 5.2 percent
from 5.1 percent.
"To bring the dollar lower, we need a very weak figure of
more than 100,000" jobs lost, said Masafumi Yamamoto, head of FX
strategy for Japan at Royal Bank of Scotland. "The risk is that
better-than-expected figures cause the dollar to rally further."
But Yamamoto said investors may be getting overly confident
that the worst of the credit crisis stemming from defaults on the
U.S. subprime mortgage crisis has passed.
Swiss bank UBS, one of the hardest hit from subprime-related
write-downs, reports quarterly earnings on Tuesday.
After the Fed trimmed rates this week to 2 percent, many
investors believe the U.S. central bank will step back to see how
much its aggressive loosening of policy and just-issued tax
rebate checks will help growth in coming months.
The dollar's shrinking interest rate had driven it to record
lows against the euro, especially as the European Central Bank
has been steadfast in saying rates are on hold. But a variety of
weak euro zone data has revived speculation of a rate cut.
Higher-yielding currencies pushed higher against the yen as
stock markets posted solid gains after a rally on Wall Street.
Japan's Nikkei average <> climbed 2 percent to a two-month
high.
Rising stocks tend to spur carry trades in which market
players use cheap funds in low-yielding currencies like the yen
to buy higher-yielding currencies and pocket the difference.
The dollar climbed 0.2 percent from late U.S. trade to 104.62
yen <JPY=>, pushing back near a two-month high of 104.89 yen hit
earlier in the week on trading platform EBS.
Traders said the dollar may have a tough time overcoming 105
yen because Japanese exporters have left orders to sell the
dollar during holidays in Japan on Monday and Tuesday.
Trading activity was subdued as many investors were away from
the market following Labour Day holidays across much of Asia on
Thursday, while Japan's Golden Week holidays resume next week.
The euro edged up to $1.5478 <EUR=> after dropping as low as
$1.5444 earlier in the session, near a one-month trough of
$1.5430 struck the previous day. The single currency was up 0.2
percent at 161.87 yen <EURJPY=R>.
The dollar index <.DXY>, a gauge of its performance against
six major currencies, was down slightly on the day and just below
the two-month peak of 73.393 hit on Thursday.
The dollar index has now clawed up about 4 percent after
hitting a record low in mid-March when the U.S. investment bank
Bear Stearns collapsed, which is now considered the peak so far
in the credit crisis that erupted in August last year.
The drop in gold and oil prices has added fuel to the
dollar's gains. Gold was holding near four-month lows in Asia at
$852.00 <XAU=>.
The dollar's slide had been exacerbated by the surge in oil
and gold, partly as investors demanded higher compensation in
those commodities for the U.S. currency's eroding value.
Commodities like oil are priced in dollars.
(Editing by Brent Kininmont)
