Dollar dips, market struggles for direction before U.S. jobs data

[April 01, 2015]  By Patrick Graham

LONDON (Reuters) - The dollar was flat to lower against the euro and yen on Wednesday as a soft Japanese business survey dented Tokyo shares but helped bolster the safe-haven yen, while another improved batch of European data helped the euro.

Slightly improved final readings of last month's purchasing manager surveys in France and Germany, and healthy figures in Italy and Spain, provided more signs that euro zone manufacturing is recovering from a low base

A solid UK reading was not enough to push the pound higher against the dollar as nerves around next month's tightly fought election weigh on investors' attitude to British assets. Sterling fell half a percent against the euro.

But after a tumultuous couple of weeks for many of the major currency pairs, volumes have eased and traders say the market may prove thin in the run-in to the Easter weekend and Friday's U.S. nonfarm payrolls numbers.

"There is a feeling that a lot of people made their money on the dollar move last month and will only come back properly in time for the climax of talks over Greece after Easter," said the head of one London wholesale FX brokerage.

"Liquidity is thin and that has contributed to the volatility we have seen in the past week or so but for most people, the direction of the dollar still clearly seems to be up."

Greece's economy minister said the country should reach a deal with its euro zone partners and the International Monetary Fund next week on a package of reforms. If it does not come to terms to unlock remaining funds from its international bailout, it is expected to run out of money some time in the next month.

The dollar fell 0.1 percent to 120.04 yen.

That was matched by a similar gain for the market's other traditional safe haven, the Swiss franc. The euro rose 0.3 percent to $1.0759.

A seven-way TV debate between Britain's party leaders on Thursday will focus attention on the political risks ahead.

Data showing Britain's manufacturing sector grew at the fastest rate in eight months in March gave the pound only brief respite in morning trade in London. By 1005 GMT it was a third of a percent lower against the dollar at $1.4774 and 0.6 percent down at 72.87 pence per euro.

Two-month implied volatility, which investors can buy to hedge themselves against big price swings around the May 7 election and any coalition talks that follow, remained close to a 3-1/2-year high hit the previous day of 13.2 percent.

"Focus on politics (is) likely to continue to intensify into Thursday's debate (and) could act as a drag on sterling given anticipated volatility," Citi FX analysts wrote in a note.

(Additional reporting by Jemima Kelly; Editing by Hugh Lawson)

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