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Euro dips on weak PMI but focus on US jobs

The euro dipped against the dollar on Friday after weak surveys on the euro zone services sector and before weekend elections in France and Greece, though falls were limited ahead of U.S. jobs data later in the day.

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Lower-than-forecast jobs creation in the United States could reignite talk of more monetary easing by the Federal Reserve, which would weigh on the dollar.

Figures due at 1230 GMT are expected to show 170,000 jobs were added in April. However, after weak private payrolls numbers earlier this week investors see a risk of a lower number.

“A non-farm payrolls number between 50,000 and 150,000 would make the market speculate about further QE which could weigh marginally on the dollar,” said Carl Hammer, chief currency strategist at SEB in Stockholm.

But any gains for the euro were likely to be tame given concerns about the prospect of a deepening recession in the euro zone due to the region’s debt crisis.

Purchasing managers’ surveys on Friday showed the euro zone services sector contracted much more than previously estimated in April, with figures out of Italy and Spain particularly weak.

This mirrored poor purchasing managers’ surveys on manufacturing activity earlier this week.

“In general the PMIs have been in line with what the consensus is in terms of growth going forward but the momentum is worrisome. It is worrying that they are surprising substantially on the downside,” SEB’s Hammer said.

The euro was down 0.15 percent against the dollar at $1.3129 .

It stayed above a two-week low of $1.3095 which it hit on Thursday before bouncing higher as European Central Bank chief Mario Draghi gave no strong hints about the prospects of more monetary stimulus.

With sentiment towards the common currency shaky, a weak U.S. jobs report is likely to weigh more heavily on the dollar against currencies other than the euro, particularly the Japanese yen.

“We’ve gone back to that situation where when the weaker data comes out, we start to price in more chance of QE3 and therefore the dollar goes weaker,” said Rob Ryan, FX strategist at BNP Paribas in Singapore, referring to the possibility of the Fed launching another bond-buying programme.

The dollar held steady versus the yen at 80.17 yen, staying above a 10-week low of 79.64 yen hit on Tuesday on trading platform EBS.

Traders said market positioning bodes ill for the dollar against the yen since currency speculators are still thought to be holding hefty short positions in the yen, suggesting a risk the yen could jump against the dollar if such bets are unwound.

POLITICAL UNCERTAINTY

The euro faced risks from political uncertainty, with elections in France and Greece looming on Sunday, the results of which may stir doubts about the countries’ commitment to fiscal austerity.

Francois Hollande, front-runner and first-round winner in the French presidential race over current President Nicolas Sarkozy, has pledged to shift the debate in Europe towards promoting growth if he is elected.

“If Hollande attempts a more growth-oriented policy approach - as his campaign suggests - that will interrupt the mostly unified political consensus that austerity policies are the way out of Europe’s crisis,” said Christopher Gothard, head of FX for Brown Brothers Harriman in Hong Kong.

“It remains to be seen how that kind of policy confusion would be received by markets,” he added.

The election in Greece is more unpredictable. The two main parties supporting the country’s bailout scheme could struggle to win enough seats to form a coalition over smaller parties opposed to the programme.