30 May 2007, 17:53  Dollar steady after ADP

The dollar was little changed by a private sector employment report which suggested that Friday's crucial non-farm payrolls data for May will come in much in line with expectations. Payrolls services firm ADP reported that the US economy added 97,000 private sector jobs in May. After adding in the 24,000 or so government jobs created in a typical month, the ADP report suggests non-farm payrolls grew by about 121,000 in May, just shy of market expectations for a 138,000 increase. The ADP report has been largely spot on regarding payrolls over the last couple of months. It's a crucial few days for perceptions of the US economy and for the dollar in particular. "It's going to be Friday's non-farm payrolls that will offer the most significant direction regarding the US economy," said David Jones, chief market analyst at CMC Markets. The key later today will be the minutes to the last rate-setting meeting at the US Federal Reserve. The statement accompanying the decision by the FOMC to keep its key Fed funds rate unchanged at 5.25 pct was seen as relatively hawkish at the time since there was no reference to the sharp drop in core inflation in the US. In recent days, some solid US economic data, coupled with continued hawkish noises from officials at the Fed, have combined to diminish market expectations the Fed will cut borrowing costs any time soon. Earlier, the market's attention was focused on China's decision to triple stamp duty on equity market transactions. Overall, it failed to have much of an impact on the currency markets, apart from a brief knee-jerk appreciation in the value of the yen. The announcement, which led to a 6 pct slide in Chinese shares and some spillover across the world, helped the yen initially as the tripling in stamp duty to 0.3 pct prompted investors to pare back 'carry trades', which draw on cheap Japanese credit to invest in markets overseas. "Until such time as market players, collectively, become aware that the risks of continued exposure to booming asset prices have become intolerable, then risk-seeking trades will remain well supported," said Neil Mellor, currency strategist at the Bank of New York. "When considering risk seeking, we are of course also including the yen carry trade, which embodies the additional risk pertaining to Japanese monetary policy and it is with this in mind that we note a growing focus on rising Japanese bond yields," he added.

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