Wednesday February 4, 06:05 PM
Dollar up sharply on US data
LONDON (AFP) - The dollar rose sharply against the euro in late trade on Wednesday, buoyed by a pick-up in US service sector figures which suggested the pace of the economic slowdown may be easing, dealers said.
They said the Institute for Supply Management service sector index rose to 42.9 percent in January from 40.1 in December, beating forecasts for a further fall to 39 and so bolstering the dollar.
Although the January outcome at below 50 showed the giant services sector still contracting, the bounce was welcomed, coming after the ISM manufacturing index on Monday improved to 35.6 from 32.9 in December.
"While both this survey and its manufacturing cousin point to a continued sharp contraction in economic activity in January, both surveys also hint that the rate of decline in output may be easing slightly," said John Ryding at RDQ Economics.
Another set of heavy US private sector job losses was also seen as bad but at least not worse-than-expected, mitigating the impact before official figures due Friday.
Dealers said the euro was hurt by some speculation the European Central Bank may cut interest rates on Thursday after poor eurozone retail sales data even though head Jean-Claude Trichet has flagged there will be no change.
In late trade, the euro was at 1.2853 dollars, down from 1.3029 dollars in New York late on Tuesday.
The dollar rose to 89.60 yen from 89.33 yen.
Despite the fall in the euro ahead of Thursday's ECB meeting, the "consensus remains that the ECB will hold fire" and leave rates at 2.0 percent, said CMC Markets analyst James Hughes.
Official data Wednesday showed that eurozone retailers experienced weak demand in the key holiday month of December.
The volume of retail sales in the eurozone was stagnant in December after a slight decline in November and fell 1.6 percent over one year.
The dollar also got some support on Wednesday after the Federal Reserve said on Tuesday it would extend emergency lending programmes and foreign currency swap lines by six months to ensure the flow of credit.
Dealers said the markets were waiting for Friday's US non-farm payrolls figures which are expected to show about half a million more job losses in January.
"Even if (the payroll data) is better than expected, it will still be a very, very terrible figure," said Jun Kato, deputy general manager at Shinkin Central Bank.
In London trade on Wednesday, the euro changed hands at 1.2853 dollars against 1.3029 dollars late Tuesday, at 115.19 yen (116.42), 0.8875 pounds (0.9010) and 1.4893 Swiss francs (1.4896).
The dollar stood at 89.60 yen (89.33) and 1.1581 Swiss francs (1.1432).
The pound was at 1.4479 dollars (1.4458).
On the London Bullion Market, the price of gold was little changed at 905 dollars an ounce after 904.50 dollars late on Tuesday.
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