FOREX-Dollar down as economy darkens;focus on payrolls data

By Julie Haviv

NEW YORK, June 2 (Reuters) – The euro touched a one-month high against the dollar on Thursday as Greece agreed to new deficit cutting measures, allaying fears over its debt crisis and causing investors to shift focus to the U.S. economy.

A recent spate of disappointing U.S. data, ranging from the factory sector to the labor market, has darkened the U.S. economy’s outlook, making the dollar less appealing than higher yielding currencies.

The data coincides with worries about the end of the Fed’s second round of quantitative easing later this month. Known as QE2, the $600 billion asset purchase program was launched to stimulate the economy. Investors fear its removal could hinder recovery.

The euro was last up 0.8 percent at $1.4424, having risen as high as $1.4487 on trading platform EBS.

“The euro’s advance remains on a shaky footing however and we see the currency vulnerable to renewed negative headlines from the euro zone debt markets,” said Vassili Serebriakov, currency strategist at Wells Fargo in New York.

The U.S. Labor Department’s nonfarm payrolls report on Friday is a key monthly driver of financial markets given jobs growth is one of the Fed’s two mandates. U.S. nonfarm payrolls likely increased by 150,000 in May, according to a Reuters poll.

A sluggish number will likely weigh on the dollar, but the greenback could get support if the data comes in at the extremes, with a very soft or even negative outcome perhaps offering some safe haven support and a clearly stronger-than-expected result could encourage medium-term dollar bulls, Serebriakov said.

New U.S. claims for unemployment benefits fell by 6,000 last week to a seasonally adjusted 422,000.

“Jobless claims were not horrible, but it is still above 400,000, which is certainly a negative,” said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto. “There is a lot of hesitancy ahead of tomorrow’s nonfarm payrolls report.”

“Every indication we have had so far points to a slightly softer labor market in the U.S.”

Greece has agreed to 6.4 billion euros in new measures to cut its 2011 budget deficit and aims to wrap up bailout talks with international inspectors by Friday, a senior government official told Reuters on Thursday.

“The euro is rallying as comfort over a near-term outcome for Greece improves and the market refocuses on problems in the U.S. economy,” Scotia’s Sutton said. “A key psychological level is $1.45.”

“The euro and dollar are in an ugly dog contest and the euro is winning right now.”

Traders said a major Asian sovereign account was a seller around the highs with further stops highlighted on a break of $1.4500, while option barriers rolling off this month are layered up to $1.4700.

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Reuters Insider show on euro technicals: http://link.reuters.com/keg89r

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The euro was last trading up 1 percent at 1.2170 francs, pulling away from its record low of 1.2053 francs struck earlier on Thursday.

The U.S. dollar, however, was under pressure against the safe-haven Swiss franc and was last down 0.2 percent at 0.8440, above a record low of 0.8383 struck on Wednesday.

The dollar index was down 0.2 percent at 74.556 after earlier falling to a one-month low of 74.29. The dollar was up 0.1 percent at 80.94 yen.