DOLLAR WILL RISE ON EXPECTATIONS OF STRONG JOBS DATA, TRADERS SAY

DOLLAR WILL RISE ON EXPECTATIONS OF STRONG JOBS DATA, TRADERS SAY

The U.S. dollar will rise this week in anticipation of a solid gain in non- farm payrolls in the October employment report due Friday, currency traders and analysts said.

"The dollar's bullish trend remains intact," said Suresh Sadasivan, foreign exchange analyst at MMS International.The dollar stalled at 1.6920 deutsche marks last week and slipped back, but the market could be ready to push above 1.70 marks this week, Mr. Sadasivan said.

He forecast a rise of 165,000 in non-farm payrolls for October, noting that some economists are expecting growth in the U.S. economy of 4 percent in the fourth quarter.

"The outlook certainly is very positive for the dollar," said Earl Johnson, vice president and chief corporate foreign exchange trader at Harris Trust and Savings Bank, Chicago.

He predicted a gain of 180,000 jobs for October that, he said, could boost the dollar moderately. "If we get a rise (in non-farm payrolls) of 200,000, the dollar could rise fairly sharply," he said.

Mr. Johnson said increased auto production will contribute to fourth- quarter economic growth. Last week's report of a 2.8 percent rise in third- quarter gross domestic product "was obviously good," he said.

Francoise Soares-Kemp, member of senior management in the private banking group at Credit Suisse, said, "Psychology is what is important in the market and psychology is in favor of the dollar right now.

"Europe is still mired in recession. The ERM (exchange rate mechanism of the European monetary system) is in shambles, and it may be a long time before it gets back on its feet," she said.

When the ERM bands were widened to 15 percent either side of a central rate at the beginning of August, "the guard rails were removed, and the sure bets aren't as sure as they used to be," Ms. Soares-Kemp said. As a result, she said, traders who routinely held positions of $6 million to $10 million each in the past "have now scaled back dramatically."

Analysts said the dollar's expected gains against the deutsche mark could be limited by a lack of any more interest rate cuts by the Bundesbank before next year.

"The Germans will cut rates again if money supply growth allows them to, but this remains to be seen," Ms. Soares-Kemp said.

Bundesbank President Hans Tietmeyer said last week that further near-term rate cuts are not needed. Meanwhile, the interest rate differential between Germany and the United States remains in favor of the deutsche mark.

Mr. Sadasivan of MMS International said the dollar faces strong technical resistance around 1.6920 deutsche marks. The Bundesbank appears to be selling

dollars around that level to adjust its reserves, and the "big U.S. funds" also are selling above 1.69 marks, he said.

The dollar soon will challenge the DM1.70 barrier, Mr. Sadasivan predicted. ''There will be another test on the upside," he said.

The dollar's gains will be limited, however, because the U.S. Federal Reserve is unlikely to raise interest rates until the second quarter of next year, Mr. Sadasivan said.

"The U.S. economy is still operating below capacity and there are no price pressures," he said.

Against the Japanese yen, the dollar looks fundamentally strong, he said, forecasting that the dollar will rise to 110 yen in the near future. "The Japanese economy is still weakening and there has been an easing of trade tensions with the United States," he said. U.S. officials in the past have ''talked up" the yen to help cut the U.S. trade deficit.

Ms. Soares-Kemp said the trade gap with Japan "has yet to turn," however, and that there will remain demand for yen to pay for Japanese exports.

Traders and analysts said the fate of the North American free-trade agreement could begin to have an impact on the dollar soon. If the Nafta is voted down by the Congress, "initially it would help the dollar," Ms. Soares-Kemp said.

A breakdown in the global trade talks under the General Agreement on Tariffs and Trade also could lift the dollar, she said. "The United States is less dependent on international trade than are other countries," she said.