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Dollar Remains Near Lows; Euro Rises on Inflationary Pressures

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By Peter Nurse

Investing.com - The dollar remained trading around multi-week lows Thursday, with weak U.S. private payrolls data raising doubts about the country’s labor market recovery, while the euro surged to a one-month high.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, edged higher to 92.483, after dropping to a four-week low of 92.376 overnight.

USD/JPY edged lower to 109.97, GBP/USD rose 0.1% to 1.3782, and the risk sensitive AUD/USD climbed 0.2% to 0.7380, helped by Australia's trade surplus widening to a record in July as exports of resources all rose strongly.

U.S. employment data released on Wednesday showed the ADP private payrolls grew by 374,000 in August, much lower than the around 600,000 jobs that had been widely expected.

Although the ADP report has been an inconsistent guide as to the official monthly jobs report, this was a very big miss and it could point to nonfarm payrolls falling short of the 750,000 gain expected. This would prompt investors to push out expectations for Fed asset tapering.

The weekly initial jobless claims release, at 8:30 AM ET (1230 GMT), will also be carefully studied for clues of the strength of the labor market. Economists are looking for 345,000 claims, a small drop from the 353,000 seen the previous week.

Contrasting with the dollar weakness, the euro climbed to a one-month high against the greenback of 1.1857, with EUR/USD currently up 0.1% at 1.1843.

SIgns of economic growth in the Eurozone, coupled with inflationary pressure as the region’s CPI climbed to 3% on Wednesday, have boosted the single currency.

Additionally, European Central Bank policymakers have begun talking publicly about their tapering plans, with Jens Weidmann, the head of the Bundesbank, mentioning on Wednesday the gradual scaling back of the central bank’s monetary stimulus.

“We have to watch the risks to the outlook for prices. In my view, upside risks predominate,” the influential German central bank chief said.

“The ECB July meeting was all about revising the forward guidance on rates. The debate on what to do with the bond purchases will be ahead in the September meeting,” said analysts at Nordea, in a note.

Eurozone producer prices for July are due later in the session, and these will be carefully studied as an indication of the pressures manufacturers are under to raise prices.

Emerging market currencies, whose central banks have been quicker to tighten monetary policy than advanced economies, continue to benefit from perceptions that the Fed will stay on hold for at least another month or two. The South African rand gained 0.4% to its highest in a month, In Latin America, The Mexican, Chilean and Colombian pesos have all gained nearly 2% against the dollar in the last week.

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