Euro steadies as eyes turn to U.S. payrolls

[June 05, 2015]  By Patrick Graham

LONDON (Reuters) - A yo-yo week for the euro settled on Friday, most major currencies treading water ahead of a monthly U.S. non-farm payrolls report looked to for a clear sign of whether the Federal Reserve can raise interest rates this year.

The biggest mover by far in morning trade was the Norwegian crown, down 1.2 percent against the euro after manufacturing output in the oil-focused economy fell almost 3 percent on the month, far more than expected.

At highs touched on Thursday, a sharp rise in German bond yields had driven the euro more than five percent stronger against the dollar in just over a week, but it has since retreated by more than a cent.

The bond market continues to be at the centre of the action, with traders and investors discussing whether there are now clear signs that the European economy is past the worst, justifying rises in yields.

Spanish industrial production and a rise in the growth forecasts of Germany's Bundesbank on Friday supported that view and both German 10-year yields  and the euro ticked higher in early trade in Europe.

By 1112 GMT, the single currency stood at $1.1228, almost unchanged on the day.

"The market is really in a state of flux," said one senior currency trader at an international bank in London.

"Are things finally starting to get better? My feeling is that they are, that the euro zone has bottomed out and that has implications for the euro."

The market's view on the U.S. economy is also at a key juncture. After a poor first quarter, the first rounds of data on April have also been mixed, supporting speculation the Fed may yet hold off until 2016 before raising interest rates. Many banks are still calling it to hike in September.

Economists polled by Reuters expect the report will show U.S. employers added 225,000 jobs in May, which would reinforce the case for a September move. The dollar was up around a quarter of a percent at 124.81 yen, within sight of a 12-1/2 year high of 125.07.

"If the figure is within expectations, the dollar could touch 125 again," said Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm.

"There are commercial orders hoping to buy on dips if payrolls disappoint, and these people will have to cover at higher levels if the dip doesn't come."

Greece's ongoing struggle to reach a deal with its lenders and avert a default continues to hover in the background for the euro. The country put off a key debt payment to the International Monetary Fund due on Friday as Prime Minister Alexis Tsipras demanded changes to tough terms from creditors for aid.

An index tracking the dollar against a basket of rival currencies was still on track for a weekly loss of more than 1 percent but up 0.2 percent on the day at 95.698.

(Additional reporting by Lisa Twaronite; Editing by Andrew Heavens)

[© 2015 Thomson Reuters. All rights reserved.]

Copyright 2015 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.