Dollar steadies near 1-mth highs, US ADP data eyed

LONDON - The dollar held near one-month highs against a basket of currencies and the yen on Wednesday, aided by rallying share prices and a drop in oil, but nagging worries about the U.S. financial sector capped sentiment.

By (Reuters)

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Published: Wed 30 Jul 2008, 6:17 PM

Last updated: Sun 5 Apr 2015, 1:01 PM

Euro momentum was undermined after sentiment data for the single currency zone came in much weaker than expected, providing further evidence of rapidly deteriorating economic conditions.

U.S. stocks rose more than 2 percent on Tuesday after Merrill Lynch's latest writedown and share sale suggested, for some, a possible turning point in the credit crisis -- sending the dollar to a one-month high against a basket of currencies.

European shares followed suit, rising on Wednesday.

A dip in oil prices to their lowest in nearly three months boosted dollar sentiment further, as worries on oil's inflationary effect receded slightly, along with an unexpected rise in U.S. consumer confidence.

But the dollar's recent upside progress was seen as vulnerable as on closer inspection U.S. consumer confidence barely climbed from its lowest levels in more than a decade while home prices continued their record decline in May.

"We haven't been able to garner much additional traction on the dollar as there are still ongoing issues with the financial sector in the U.S. which are overhanging the market to a degree," Rabobank markets strategist Jeremy Stretch said.

"Realistically there is a risk that euro/dollar goes lower but I think the break out of the ranges is still probably going to be a post-holiday story," he added.

By 1118 GMT the dollar index, which measures the U.S. unit's performance against a basket of six currencies, was flat at 73.241 but stayed within sight of a one-month high of 73.428 set the previous session.

The euro was steady at $1.5590, having fallen 1 percent the previous day. The dollar dipped 0.2 percent to 107.84 yen, reflecting tentative appetite in the stock market. But it stayed close to a one-month high of 108.30 yen reached on Tuesday.

While stock markets rallied, corporates were feeling the impact of currency markets on their bottom lines. European aerospace group EADS said it was taking "decisive actions" on currency hedging. Click on.

Investors will watch the ADP national employment survey due later in the day to help reassess forecasts for U.S. jobs numbers that the government will release on Friday.

Economists polled by Reuters expect the ADP report to show that 60,000 jobs were shed in July.

Euro zone sentiment slides

Economic sentiment in the euro zone skidded in July to its lowest level since May 2003 as confidence fell in all sectors.

Euro zone economic sentiment worsened to 89.5, well below a Reuters consensus forecast of 93.0. Consumer, industrial and services sentiment were all below forecast.

Analysts said the data may well be a precursor to a shift in European Central Bank monetary policy towards eventual rate cuts from the current 4.25 percent.

"If activity slows as the survey suggests, inflation worries must give way to anxiety over weakness in the real economy," Capital Economic's Jennifer Mckeown said.

Elsewhere, the Australian and New Zealand dollars fell on a view that the impact of the economic slump and the credit crisis was spreading into the region.

The Aussie was down 0.4 percent at $0.9486 after hitting $0.9473, a six-week low, hurt by the slide in commodity prices and after the nation's top banks disclosed increased losses from exposure to distressed credit markets.

The New Zealand dollar declined 0.8 percent to a 10-month low of $0.7330 after Reserve Bank of New Zealand Governor Alan Bollard said he sees plenty of room for further interest rate cuts.

The RBNZ is expected to cut rates again in September after it trimmed them by a quarter-point to 8 percent last week.

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