4 August 2006, 12:08  Dollar steadies on Friday

The dollar steadied on Friday as investors looked to U.S. jobs data later in the session for clues to whether the Fed will raise interest rates for an 18th straight time at its meeting next week. Mounting expectations that the Fed will soon pause its two-year string of interest rate rises have driven the dollar to one-month lows against a basket of currencies. With investors split over whether the Fed will move, the jobs data is the last major piece of news before the central bank decides whether to continue its series of quarter-point rate rises, which would take the key rate to 5.5 percent. Economists polled by Reuters expect a rise of 142,000 in the July nonfarm payrolls report, up from 121,000 in June. Analysts said a surprisingly smaller figure would help cement expectations that the Fed will take no action and would hurt the dollar, while a strong outcome would raise the prospect of it bumping up rates at least once more to help contain inflation pressures. "The risk is to the upside because, to a certain degree, the market has already factored in no move in August," said Toru Umemoto, chief FX strategist for Japan at Barclays Capital in Tokyo. "If payrolls and wages are stronger than expected, that would be a surprise to the market." The focus on the jobs data and Fed comes just a day after the European Central bank raised rates to 3 percent as widely expected and signalled more tightening may be needed, while the Bank of England surprised with its own rate increase. The dollar index, which gauges its trade-weighted performance against major currencies, edged up to 85.10 after hitting a one-month low of 84.86 on Thursday.

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