Dollar Recoups Amid Dearth of News by Korman Tam

The greenback recouped some of its losses against the euro, and sterling but remains mired near its lows as the market prepares for a barrage of key economic events in the week ahead. The state of the US economy will remain the primary focus with traders assessing the prospects for further policy easing from the FOMC this year. Of particular importance will be Friday’s labor report given last month’s dismal results. Consensus estimates are calling for a strong rebound to 94k versus a 4k decline in August. Another disappointingly weak jobs report will fuel expectations for the Fed to cut by an additional 50-basis points in October and seal the dollar’s fate for the coming months.

Earlier in the session, the September manufacturing ISM fell to its lowest reading since March at 52, softer than expected and down from a month earlier at 52.9. The prices paid component slipped to 59.0, versus 63.0 from August while the employment index crept higher to 51.7 from 51.3.

Central bank policy decisions will also dictate currency market direction. Both the Bank of England and the European Central Bank are slated to release the results of their policy deliberations on Thursday. Although neither Bank are expected to change policy, last Friday’s speculation of a surprise BoE rate cut are fresh on traders’ psyches and will likely limit the sterling’s upside gains heading into the market. Also, ECB President Trichet’s post-meeting press conference will be closely scrutinized for clues into when the Bank will raise rates again.Euro Firm Above 1.42

The euro retreated off its record highs against the dollar but holds steady above the 1.42-level. ECB President Trichet pushed the single currency lower overnight as he mentioned the US’ strong dollar policy in his comments. Trichet said he’s “noted with extreme attention that the US Treasury Secretary and … the Federal Reserve have said a strong dollar is in US interests”. The rise in the euro to record highs has prompted Eurozone government officials to express their unease with these levels, arguing that the current exchange rate is detrimental to exports.

In the session ahead, Eurozone economic data slated for release consist of August unemployment rate, and PPI. The Eurozone unemployment rate is forecasted to remain unchanged at 6.9% while PPI is forecasted to slip to 0.1% m/m and 1.7% y/y.