LONDON (Thomson Financial) - The dollar came through on top in a day marked by mixed fortunes as players shrugged off a European Central Bank rate hike and yet another drop in U.S. job creation.
The day's U.S. data was decidedly weak, with the snapshot of the services sector of the world's biggest economy and the much awaited jobs report painting a gloomy picture. However, not so gloomy that it was unexpected and already reflected in the dollar's exchange rate.
The dollar had suffered a brief dip after the European Central Bank raised interest rates by a quarter point, as expected, but its falls proved fleeting. The euro rose above $1.59 but quick profit-taking ensued, especially after ECB chief, Jean-Claude Trichet, failed to signal that more hikes are on the way.
"The dollar recovery was a classic example of 'buy the rumour sell the fact' with both the ECB rate hike of 25 basis points and non-farm payrolls of -62,000 widely anticipated by markets and already priced into exchange rates," said Michael Woolfolk at Bank of New York Mellon.
"The failure of Trichet to signal any further ECB rate hikes and the failure of non-farm payrolls to live up to its negative whisper, prompted a sizable relief rally ahead of the long holiday weekend," he added.
U.S. markets will be closed Friday for a public holiday.
"Given that Trichet had no knowledge of non-farm payrolls ahead of its release, it was obvious in retrospect that he would not pre-commit to further rate cuts and risk triggering a surge in the euro above the $1.60 level," said Woolfolk.
Also on Thursday, the Institute for Supply Management (ISM) said the non-manufacturing index for June fell to 48.2, lower than the 51.0 median expectation of economists polled by Thomson Reuters IFR Markets, and down from the 51.7 reading in May. A reading above 50 indicates growth, below 50 contraction.
But by the time the data came out, the dollar's trend was already intact.
Elsewhere, the pound remained on the back foot, but more against the dollar than the euro. The euro came close to making a sustained break above the 0.80 level against the UK currency after a survey showed UK services sector activity at its weakest for five years but the momentum faded as the day wore on.
UK services sector PMI slumped to 47.1 in June from 49.8 in May, keeping the reading below the 50 level that marks contraction in the sector and way below forecasts for a much more moderate fall to 49.5. The news came as a Bank of England survey also reported tighter credit supply and wider spreads to both firms and households, raising fears of a recession in the UK.
"The UK economic outlook continues to darken amid the triple whammy of a credit crunch, oil price surge, and housing market correction ... The risks of mild recession in the UK are clearly rising," said Matthew Sharratt at Bank of America.
London 1554 GMT London 1119 GMT
U.S. dollar
yen 106.76 up from 106.28
Swiss franc 1.0273 up from 1.0123
Euro
U.S. dollar 1.5704 down from 1.5892
pound 0.7921 down from 0.7988
yen 167.69 down from 168.92
Swiss franc 1.6135 up from 1.6084
Pound
U.S. dollar 1.9822 down from 1.9904
yen 211.65 up from 211.46
Swiss franc 2.0367 up from 2.0130
Australian dollar
U.S. dollar 0.9597 down from 0.9618
pound 0.4841 up from 0.4832
yen 102.48 up from 102.20
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