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Dollar pauses for breath

Monday, July 28 09:01:57

The U.S. dollar hovered near six-month highs against a basket of major currencies on Monday, with data and policy releases this week set to determine whether its strongest week since March last week prefaces a broader move higher.

The euro had stabilized a touch in an Asian session weakened by a holiday in Singapore. But it was still trading just above its weakest in eight months. Another half cent fall would take it to its lowest since September of last year.

Two strong weeks running for the dollar have encouraged belief that the U.S. currency is finally ready to make good on forecasts for a long-awaited recovery as economic growth there easily outpaces that in mainland Europe.

But the scale of the dollar's moves - a 2 percent rise against the euro this month - also increase the odds of some players cashing in some of those gains.

Euro zone inflation, already uncomfortably near zero for European Central Bank policymakers, is due on Thursday and will be prefaced by a steady drip of German regional and national numbers.

The other big number is U.S. non-farm payrolls on Friday, with expectations for Wednesday's Federal Reserve statement dampened by a series of appearances by chair Janet Yellen and other policymakers in recent days.

Monday's only top-line number in Europe is data on credit and money supply. The euro was steady at $1.3431 in early European trade.

Numbers on Wednesday are expected to show the U.S. economy grew at a 3.2 percent annual pace in the second quarter, up from 2.9 percent in the first. Nonfarm payrolls are expected to show a rise of 231,000 in July after they increased 288,000 in June.

Yellen said this month that the Fed could raise rates sooner than initially expected if labor markets continued to improve and most economists expect the U.S. central bank to start raising interest rates in the second half of next year.

The dollar index was steady at 81.045, after it peaked at 81.084 on Friday, a high not seen since early February. So far this month, it has rallied around 1.6 percent, on track for its best monthly gain since January.

Against its Japanese counterpart, the dollar was steady at 101.81 yen.

The latest figures from the Commodity Futures Trading Commission showed currency speculators increased their bullish bets on the greenback in the week ended July 22.

U.S. Treasury yields, however, remained pinned near recent lows, with the yield on the benchmark 10-year U.S. Treasury note at 2.478 percent in Asia, not far from its U.S. close of 2.469 percent on Friday. The fact that the 10-year yield remains well below 3 percent suggests that investors betting on the dollar were not driven by any material change to the U.S. economic outlook.

Analysts at Barclays said this week's U.S. data could challenge that perception. (Reuters)

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