Dollar steadies as bears pause for breath
By Jennifer Hughes in London May 2 2003 08:45
The dollar was steady against the euro but off Thursday's four-year lows as investors remained wary of a further move downwards for the greenback and focused on a key US employment report due later.
The euro stood at $1.121 against the dollar as European trading picked up pace, off a four-year high on Thursday of $1.1287 during the US session. It was the dollar's third consecutive four-year low in as many days.
Strategists were taken by surprise by the scale of the dollar's slump, which began in New York trade on Wednesday, and remained wary of making near-term predictions.
"Its like catching a falling knife - no one is prepared to say how far this move will go," said Mansoor Mohi-uddin, chief foreign exchange strategist at UBS Warburg.
Weak data on Thursday was the spur for the dollar's latest move lower. The Institute for Supply Management's survey of manufacturing showed contraction in the sector increased in April instead of slowing slightly as economists had forecast.
Analysts noted the employment component of the ISM data fell further, boding ill for Friday's monthly payrolls report.
"If payrolls do fall, that will be the sixth decline in eight months," noted Ian Morris, economist at HSBC in New York. "However you cut it up, the recent trend is not good."
Consensus estimates suggest a fall in the headline payrolls number of about 80,000, but Citigroup have predicted a fall of 125,000.
"A payrolls number in line with our expectations would further add to dollar risks," said Steven Saywell, senior currency strategist at Citigroup, who highlighted the effect of recent weak data on the market's expectations for rate cuts.
"The shift in the interest rate futures market to price in an increasing chance of further Fed easing is weighing on the dollar, while an actual rate cut represents a significant downside risk to the dollar," he added. "
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