SINGAPORE, May 5 (Reuters) - The U.S. dollar was a shade
weaker on Monday but held on to most of last week's gains,
supported by labour market data and speculation the Federal
Reserve will not need to cut interest rates again.
At 0550 GMT in holiday-thinned Asian trading, the euro had
risen to $1.5465 <EUR=>, nearly 0.3 percent above Friday's late
level of $1.5424 but still well below April's record highs
around $1.6018.
The yen remained weak as returning risk appetite encouraged
traders to borrow the yen at low interest rates to invest in
high yielding currencies, such as the Australian <AUD=> and New
Zealand <NZD=> dollars. One U.S. dollar bought 105.22 yen, far
above 95.71, a 13-year low hit in March.
Activity was light with markets in Tokyo and London off for
holidays and traders waiting to see if a survey on the U.S.
services sector later in the session suggests the economy is as
resilient as other recent figures have indicated.
The dollar firmed on Friday after U.S. payrolls fell in
April by a smaller-than-expected 20,000, while the jobless rate
actually dipped to 5.0 percent. []
"The drop in the unemployment rate has strengthened the
market's conviction that the Fed is done," said Darren Gibbs,
an economist at Deutsche Bank.
"For the first time this year, near-ahead Fed funds
expectations are flat with the actual Fed funds rate," he said.
"What's more, the market is pricing a decent chance of a rate
hike by the end of the year."
Still, while the jobs data was evidence the U.S. economy
may not face as severe a slowdown as some had feared, analysts
also said market participants could be prematurely pricing in
an end to the Fed's rate cutting cycle because more dramatic
weakness in the labour market was in store.
Strategists at RBC Capital Markets said a decline in
average hourly earnings to the slowest pace since January 2006
was worrisome. The figures were included in Friday's data.
"Slower income growth, lingering worries over the housing
sector, and tighter credit markets remain a potent cocktail of
bearish factors for the U.S. consumer and the broader economy,"
RBC said in a note.
ON ECB, UBS WATCH
Investor sentiment was helped by the Fed's expansion of its
twice-weekly Term Auction Facility (TAF) to $75 billion from
$50 billion. It also expanded the collateral that can be
pledged in its Term Securities Lending Facility (TSLF)
auctions. []
"That takes the pressure off the Fed to ease rates to help
liquidity," said Gerrard Katz, head of north Asian FX trading
at Standard Chartered Bank.
"But the stock market ended up flat and UBS news of
redundancies is a reminder that a lot still has to work through
the U.S. and global economy."
The Swiss bank is due to report first-quarter results on
Tuesday. It is expected to announce job cuts for up to 10
percent of its investment banking workforce of 22,000.
[]
The U.S. stock market rise on Friday was fairly modest, and
the dollar's rally had lost momentum on Monday.
The New York Board of Trade's dollar index, which charts
the dollar's performance against a basket of six currencies,
was in a narrow range around 73.40 on Monday, having hit
two-month peaks at 73.698 <.DXY> on Friday.
Still, traders said they expected the dollar to hold on to
its gains in a relatively light week for data. The main U.S.
release on Monday is the ISM non-manufacturing survey for April
and only a small decline to 49.1, from 49.6 in March, is
expected. [].
On the other hand, the euro was restrained by market
expectations that slowing growth will spur the European Central
Bank to turn more dovish on rates, traders said.
The most recent indicator was Friday's RBS/NTC Purchasing
Managers' Index for euro zone manufacturing, which showed the
sector was close to contraction.
The ECB holds a policy meeting on Thursday. Central banks
in Australia and Britain also hold meetings this week, but none
is expected to change rates.
"The bigger picture for FX markets remains that we think
the ECB is being gradually forced by the data flow into
accepting that interest rates need to come lower, while the Fed
rate cutting cycle is in the end game," said UBS strategist
Ashley Davies.
"On that basis, while the dollar has already appreciated
rather rapidly against euro over the past one and a half weeks,
we think the risks still tilt to further strength, and target
euro/dollar at 1.47 over 3 months," he said in a note.
(Additional reporting by Wayne Cole)
(Reporting by Vidya Ranganathan; Editing by Neil Fullick)
