LONDON (AFX) - The euro firmed against the dollar in early trade following Friday's extremely weak U.S. labour figures showing the fastest contraction in employment since 1991, dealers said.
However, they were surprised the single currency was not stronger given the extent of the fall in the U.S. numbers.
"When you think of how bad the payroll figures were on Friday, why is the euro not up to 0.91 usd?" 4CAST currency strategist Paul Bednarczyk said.
"It tried hard on Friday but there's a big trend line at 0.9020 usd blocking it," he said.
Dealers said today's euro zone production price index and German factory orders would have limited impact on the euro as market participants were of the view that the European Central Bank's concerns about inflation would preclude a rate cut at its governing council meeting on Thursday.
They said the markets' reappraisal of the ECB's refusal to cut rates in response to the global slowdown could be shortlived, resulting in further downwa rd pressure on the euro.
"The ECB was looking quite good for a while with all the CPI numbers and the M3 bearing out its concerns about inflation, but after all last week's service sector PMIs it's not looking so good now," Bednarczyk said.
In the UK, where the markets are closed for a bank holiday, market participants are counting on a further 25 basis point rate cut on Thursday at the conclusion of the monthly meeting of the Bank of England's monetary policy committee.
As for the dollar, dealers said Friday's U.S. retail sales figures, producer price index and University of Michigan consumer confidence index would provide fresh insight into the U.S. economy.
They said the currency was underpinned by hopes that the job figures would prompt another rate cut by the U.S. Federal Reserve.
Elsewhere, the yen was lower after Japanese Prime Minister Junichiro Koizumi's policy speech merely reiterated his strong commitment to structural reforms and detailed proposals that were included in his predecessor's emergency economic stimulus package released in early April.