Dollar stays near six-week high as crucial jobs report nears

Reuters

By Anooja Debnath

LONDON (Reuters) - The dollar held near a six-week high on Thursday ahead of a key U.S. jobs report that could seal the case for a reduction in U.S. stimulus this month, and was unfazed by a slew of major central bank meetings elsewhere.

The dollar index was up 0.3 percent at 82.383, not far from a six-week high of 82.516 hit on Tuesday.

The U.S. currency was also just above 100 yen, marking a six-week peak for the currency pair. Traders said the yen suffered as investors unwound their safe-haven buying spurred by concerns over a U.S. plan to attack Syria, while moving little after the Bank of Japan maintained its policy as expected.

The euro failed to gain support from data showing euro zone businesses had their best month in over two years in August, because investors expect the European Central Bank on Thursday to stick to its line that interest rates will stay low to support the euro zone's fragile recovery.

The single currency was last down 0.3 percent at $1.3172, not far from a six-week low of $1.3138, hit on Tuesday.

"Even though we have seen euro zone data picking up, I don't think it is sufficient to warrant any shift in the ECB's stance," said Neil Jones, head of hedge fund FX sales at Mizuho Corporate Bank.

"So I do expect them to reiterate stimulus and maintain an accommodative stance to prop the euro zone economy up and this would weigh on the euro."

The ECB rate decision is due at 1145 GMT, after which the central bank's president, Mario Draghi, will hold a press conference at 1230 GMT.

The Bank of England also wraps up a policy meeting on Thursday, with some analysts expecting it to talk down markets pricing in a rate hike earlier than its own forward guidance, which could weigh on sterling.

The pound was last down 0.2 percent at $1.5596.

The main focus this week, however, will be on the U.S. government employment report, due out on Friday.

If that data confirms a continued recovery in the U.S. job market, it will be seen as sufficient to ensure that the Federal Reserve decides to start reducing its bond-buying programme at its September 17-18 meeting.

Expectations that the Fed will be the first to hike rates among major central banks have underpinned the dollar.

"The dollar is on a rising trend. If the two-year bond yield rose further, say to above 0.5 percent, that could spur more dollar buying," said a trader at a Japanese bank.

The two-year U.S. debt yield hit a two-year high of 0.4860 percent on Thursday, widening the dollar's yield advantage over other currencies.

The dollar was up 0.2 percent at 100.0 yen, its highest since July 25. The greenback has seen three straight days of gains versus the yen, which traders say was partly due to unwinding of safe-haven buying on concerns over Syria.

"It seems like the market is tentatively concluding that any military action may not last that long and its impact on the world economy will be limited. The market is coming back to business as usual," said Bart Wakabayashi, head of forex at State Street Global Markets.

(Additonal reporting by Hideyuki Sano in Tokyo; Editing by Hugh Lawson)

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