LONDON (AFX) - The dollar held a firm tone in midday trade amid a lack of fresh news, ahead of tomorrow's crucial U.S. nonfarm payrolls figures for April, dealers said.
Steve Hannah, chief economist at National Australia Bank, is of the opinion that the dollar remains at relatively expensive levels, not far away from a 15-year high in terms of the trade-weighted level. He said: "Tomorrow is critical because I think the risks are skewed towards a bad payrolls figure."
"If we get a particularly weak figure, and by applying the logic applied recently that the dollar should weaken on good news, does that mean that on a bad payroll number we should buy the dollar?" "I think many would hesitate, which leads us to the conclusion that the dollar goes down on good news but does not go up on bad news. It's a bit of a lull before the storm," he said.
He further pointed to today's Organisation for Economic Cooperation and Development's preliminary economic outlook report which reiterated the optimistic view about the U.S. economic rebound. "The market is feeling a little bit more comfortable about the U.S. economic situation, which is prompting some movement out of the U.S. dollar into slightly riskier but high-yielding alternatives," said Hannah.
He added: "If the U.S. economy does rebound in the second half of the year it is good news for the world economy and that means we can more safely dip into other currencies that are cheaper alternatives to the greenback."
Today's euro zone figures had little impact on the single European currency, which dropped below the 0.89 usd level, dealers said.
Hannah said: "The euro is treading water until the U.S. nonfarm payrolls data tomorrow. The data is giving an impression that although the euro zone is down, it is not slowing down at a pace which would alter the European Central Bank's monetary policy at this stage." Unemployment in the euro zone fell to 8.4 pct in March from a revised 8.5 pct in February, while economic sentiment indicator fell to 102.1 in April, from 102.3 in March. Sterling was also marginally lower on a weaker-than-expected service data, dealers said. The UK Chartered Institute of Purchasing and Supply reported that its service sector Business Activity index fell to a seasonally adjusted 51.2 in April from a downwardly revised 55.7 the previous month. "The market accepts that the weakness in the figure is a temporary issue to do with foot and mouth, stripping that factor out the service sector is holding up reasonably up." Trading activity on the yen was muted due to the effective closure of the Japanese market for Golden week holiday.