By Bradley Davis
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The dollar gained Wednesday on better-than-expected U.S. jobs data, as the euro's rally on a plan to pull Greece out of a budget hole ran out of steam and investors focused on brightening prospects for the U.S. economy.
Investors earlier bid the euro higher against the dollar after the European Commission accepted Greece's budget-reducing plan, though the common currency surrendered those gains to fall against the dollar after the release of a January U.S. jobs report that showed a recovery gaining traction.
Wednesday morning, the euro was at $1.3946 from $1.3964 late Tuesday, according to EBS via CQG. The dollar was at Y90.77 from Y90.37, while the euro was at Y125.52 from Y126.20. The U.K. pound was at $1.5943 from $1.5979. The dollar was at CHF1.0570 from CHF1.0550.
The ICE Dollar Index, which tracks the performance of the greenback against a trade-weighted basket of currencies, was at 79.159 from 79.000.
U.S. labor markets showed positive signs of recovering in January. Private-sector jobs in the U.S. fell by only 22,000 in January, the smallest drop since February 2008, and service jobs continued to rise, according to a national employment report published Wednesday by payroll company Automatic Data Processing Inc., and consultancy Macroeconomic Advisers.
The ADP loss is slightly below the 30,000 drop projected by economists in a Dow Jones Newswires survey. The dollar strengthened to an intraday high, at Y90.88, against the yen after the release of the data.
Investors are looking to the release of Friday's U.S. non-farm payrolls number as a key indicator of whether the U.S. economy is continuing along the road to recovery.
The economies of the euro zone, meanwhile, continues to dog the common currency, said Stuart Bennett, senior currency strategist at Calyon in London.
The European Commission accepted Greece's plan to slash its budget deficit but warned that further spending cuts and new taxes might be needed to fix the country's public finances.
The euro had gained to an overnight high of $1.4027 ahead of the report, but had given back most of those gains by the time it was released before it ticked to a loss after the U.S. employment report.
Now that investors are more confident of an eventual Greek turnaround, they are focused on other festering budget issues in the euro zone, Bennett said.
"The pressure is taken off the euro for a little while, but the market just focuses on Portugal, seeing that as the new weak link within the euro zone," Bennett said.
Spreads between Portugal bonds and German bunds, considered the euro zone standard bearer, have widened, indicating investors think Portugal is an increasingly risky bet, he said. Investors also are casting a nervous eye toward Spain, which also struggles with deficit spending.
Investors reacted positively to the commission's acceptance of the Greek plan. The spread between yields on 10-year Greek and German government bonds was between 332 and 338 basis points Wednesday, down from 353 basis points late Tuesday.
Greece has pledged to bring its budget deficit below 3% of gross domestic product by 2012, following a shortfall of close to 13% in 2009. Under European Union rules, countries must keep their budget deficits below 3% of GDP.
"We know that the implementation of this program is not easy...but we need to support it" and monitor it closely, European Commissioner for Economic and Monetary Affairs Joaquin Almunia said at a news conference Wednesday.
Canada Morning
The Canadian dollar was modestly lower in essentially directionless trading Wednesday morning with no significant domestic data to provide trading incentives.
The U.S. dollar was trading at C$1.0597 from C$1.0582 late Tuesday.
"North of the border the calendar is again empty, leaving equities and the USD in general to dictate the direction of the [Canadian dollar]," said a report from BMO Capital Markets.
"Overall, our longer term outlook for USD/CAD remains unchanged and we still suggest that any spike higher in USD/CAD will ultimately prove to be good longer-term selling opportunities," BMO said.
(END) Dow Jones Newswires
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