Originally created 03/31/04

Dollar pulls back; focus on ECB, U.S. payrolls

NEW YORK - The dollar slipped modestly against most major currencies Tuesday, while edging higher against the yen, as investors enjoyed a reprieve from recent volatility ahead of potential trendsetting events later this week.

Consolidation was the theme after the dollar's breakout from recent ranges in Monday's session - during which it slid to a six-week low around 105.30 yen and reached its strongest level against the euro since early December of $1.2050.

With comments by Federal Reserve officials providing little direction for currency markets, investors were generally squaring up ahead of the late-week activity, with the Bank of Japan's March tankan survey and the European Central Bank policy meeting on Thursday, and U.S. payrolls data for March due out Friday.

"It's going to be a busy week," said Lara Rhame, senior economist at Brown Brothers Harriman & Co in New York. But as for Tuesday's lackluster session, she said, "We've had very narrow ranges across the board, so it's hard to pin down any real direction."

In late New York trading, the euro was quoted at $1.2191, up from $1.2143 late Monday. The dollar was quoted at 105.58 yen, up from 105.46 yen late Monday.

The dollar was quoted at 1.2802 Swiss francs, down from 1.2858, and 1.3067 Canadian dollars, down from 1.3084. The British pound rose to $1.8272 from $1.8179.

One trend Rhame sees emerging is that Fed policy makers seem to be laying the groundwork for an eventual shift to higher interest rates. Several Fed officials spoke Tuesday, and while they continue to express concern over the mostly jobless U.S. economic recovery, they also pushed home the point, yet again, that rates can't stay at 46-year lows forever.

"We'll need to get interest rates back to a more neutral level if the economy gains the momentum I think it will," Federal Reserve Bank of Atlanta president Jack Guynn told reporters on the sidelines of a speech in Jackson, Miss. He also downplayed the recent series of disappointing monthly payroll numbers, saying "we can't get all hung up on the next job report."

Economists expect U.S. payrolls to jump 120,000 in the March report, although some market participants have once again started speculating about higher numbers, in the area of 150,000. Fed Governor Ben Bernanke called job growth "distressingly slow" in a speech in Durham, N.C., but in response to questions added that he expects job creation to "come back at some point this year."

Meanwhile, William Poole, president of the Federal Reserve Bank of St. Louis, said the Fed would be "preemptive" about inflation pressures, citing "a slightly higher risk of inflation being above forecast."

Still, the various comments had little effect on currencies, with investors waiting to see proof in the numbers. Tim Mazanec, senior currency strategist at Investors Bank & Trust in Boston, said Fed officials seem to be placing more emphasis on the idea that rates can't be accommodative forever. But he adds, "I think it's show-me time, and the jobs picture will end all discussions."


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