WORLD FOREX: Dollar Mixed To Lower; Payroll Hopes Positive

LONDON (Dow Jones)--Last-minute positioning ahead of U.S. nonfarm payrolls data at 1330 GMT left the dollar lightly mixed to lower in Europe Friday.

The major mover was the pound, which rallied sharply despite a recent attempt by senior colleagues to topple the prime minister.

See the pound's bounce against the dollar

http://www.dowjoneswebservices.com/chart/view/3251

As payrolls get closer, analysts are taking an increasingly positive view, hoping that the numbers will show payrolls rising for the first time in nearly two years.

This would probably increase speculation about an earlier hike in U.S. rates, especially after Kansas City Federal Reserve President Thomas Hoenig said Thursday that policy needs to be returned to a more balanced weighting "sooner rather than later."

Also James Bullard, president of the St. Louis Fed, encouraged the bullish speculation with his comments that the labor market is improving and the unemployment rate will soon start to fall.

However, there are those who advise caution, noting that consensus forecasts for payrolls have often proved too optimistic in the past and that risks are skewed to the downside.

At the moment, the Dow Jones consensus forecast remains for a 10,000 fall in payrolls in December, a slightly smaller decline than the 11,000 registered in November. Nevertheless, there are those looking for a rise of as much as 85,000.

Apart from the risk of a disappointing number, there is also some uncertainty over how investors will react, especially as far as the dollar's performance against the euro.

"Euro/dollar reaction to U.S. data will be really uncertain, depending on whether investors will follow the risk aversion/risk appetite story or react in a more 'orthodox' way," said the currency strategy team at UniCredit Markets and Investment Banking.

Elsewhere, investors were also assessing the latest comments on the yen from Tokyo after Prime Minister Yukio Hatoyama appeared to admonish his newly appointed Finance Minister Naoto Kan, saying that governments shouldn't comment on foreign-exchange rates.

Kan had previously said he would prefer a weaker yen but then appeared to relent, suggesting that foreign-exchange movements should be left to the markets.

All this took place against a background of easing global risk appetite after China started to reduce market liquidity, a move that signaled the country is focusing less on promoting growth and more on reducing inflation pressures.

As a result, high-yielding currencies were generally in favor, and the pound, which has recently been suffering from concerns both about the U.K. budget deficit as well as Prime Minister Gordon Brown's faltering position within his own party, staged a rebound.

Earlier this week, Brown was faced with an attempt by two senior colleagues to call a secret ballot on his leadership, which could have forced his resignation before a general election later this year.

By 1020 GMT, the dollar was down a little at Y93.14 from Y93.28 late Thursday in New York, according to EBS.

The euro was flat at $1.4320 but down at Y133.39 from Y133.57.

The dollar was also up a little at CHF1.0351 from CHF1.0337, while the pound rose to $1.6029 from $1.5936.