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FOREX-Dollar eases off of two-week high following soft U.S. data
Published at 05/05/2021 at 16:16

* Graphic: World FX rates

(Adds results from U.S. economic data, analyst quotes, updates prices)

By John McCrank

LONDON, May 5 (Reuters) - The dollar eased off of its more than two-week high hit earlier on Wednesday following some softer-than-expected U.S. economic data that prompted traders to consolidate positions ahead of the April jobs report due at the end of the week.

U.S. private payrolls rose by the most in seven months in April, ADP data showed on Wednesday, as companies boosted production to meet a surge in demand amid massive government spending and rising COVID-19 vaccinations. But the 742,000 private jobs created fell short of the 800,000 jobs expected by economists in a Reuters poll.

In the U.S. services industry, activity eased in April from a record level in March, likely due to shortages of inputs amid a burst of demand, data from the Institute for Supply Management showed.

"That's certainly worrisome for U.S. dollar traders and holding them back from restoring long dollar positions ahead of non-farm payrolls," Kathy Lien, managing director at BK Asset Management, said of the data.

The median forecast for Friday's jobs report is for a rise of 978,000, but estimates stretch as high as 2.1 million.

"There is a good chance it will exceed 1 million, but as we look at some of the leading indicators for the economy, the recovery and the labor market, we are not seeing that outsized strength that everybody had anticipated and that's holding the dollar back," Lien said.

The dollar index, which measures the greenback against a basket of peer currencies, was last at 91.262 after rising as high as 91.436 earlier in the session, its highest since April 19.

The earlier bounce was partly prompted by comments from U.S. Treasury Secretary Janet Yellen that rate hikes may be needed to stop the economy from overheating.

Yellen later downplayed their importance, but even the slightest mention of U.S. tightening has an outsized impact in markets that have become so dependent on monetary stimulus.

"The markets may be tempted to do some 'yellen and screaming' after last night's episode, following the apparent hawkish comments by the U.S. Treasury secretary and the subsequent backtracking," said Valentin Marinov, head of G10 FX research at Credit Agricole.

"All that said, the comments do highlight that there is now an ongoing debate among the U.S. officials about the need to curb the Fed's ultra-aggressive monetary stimulus," Marinov added.

So far, Federal Reserve Chair Jerome Powell has argued that the labor market is still far short of where it needs to be to start talking of tapering asset buying.

Three more Fed officials are speaking on Wednesday, providing the opportunity for further market-moving comments.

The dollar was nearly flat against the euro , at $1.2006, which had earlier dropped below the $1.20 mark, its lowest against the greenback in more than two weeks.

Trading was limited in the overnight session, with Japan and China on holiday, but the New Zealand dollar jumped 0.93% to $0.72150 on the back of stronger-than-expected jobs data. The Australian dollar ticked up 0.51% to $0.77505.

Sterling traded 0.15% higher at $1.39075 a day ahead of the Bank of England meeting, where it is expected by some to announce a tapering of its bond-buying programme.

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(Reporting by John McCrank in New York; additional reporting by Ritvik Carvalho in London; Editing by Mark Potter, Will Dunham, William Maclean)

((john.mccrank@thomsonreuters.com Twitter @jmccrank; 1 646 223-6643; Reuters Messaging: john.mccrank.thomsonreuters.com@reuters.net))