Dollar off lows but gains capped ahead of U.S. jobs report

Sydney-Australia (May 1)  The dollar pulled away from lows against most of the other major currencies on Thursday, but investors remained cautious ahead of the U.S. nonfarm payrolls report for April, due for release on Friday.

The euro backed off three-week highs, with EUR/USD trading at 1.3865, after rising as high as 1.3889 earlier.

In the U.S., data on Thursday showing an unexpected increase in initial jobless claims was offset by stronger than expected reports on consumer spending and manufacturing.

The Department of Labor said the number of people filing for initial jobless benefits last week rose by 14,000 to 344,000 from the previous week’s upwardly revised total of 330,000.

Analysts had expected jobless claims to fall by 11,000 to 319,000.

At the same time, the Commerce Department reported that U.S. personal spending rose 0.9% in March, from an upwardly revised 0.5% the previous month and ahead of expectations of 0.6%.

Consumer spending is the single biggest source of U.S. economic growth, accounting for as much as two-thirds of economic activity.

The report also showed personal income rose 0.5%, beating expectations for a 0.4% increase.

Separately, the Institute for Supply Management said its manufacturing PMI rose to 54.9 last month from 53.7 in March, compared to expectations for a reading of 54.3.

The reports came one day after data showed that the U.S. economy expanded at an annual rate of just 0.1% in the first quarter, well below forecasts for an expansion of 1.2%.

Despite the sharp slowdown in growth the Federal Reserve said Wednesday it would reduce its bond purchases to $45 billion a month. The Fed acknowledged that first quarter growth was far weaker than expected, but added that growth had started to pick up in recent weeks.

Investors were looking ahead to Friday’s April nonfarm payrolls report, which was expected to show that the recovery in the labor market was continuing.

Elsewhere, GBP/USD was trading at 1.6890, after rising to highs of 1.6922 earlier, the strongest level since August 2009.

The pound strengthened after data showed that manufacturing activity in the U.K. expanded at the fastest rate in five months in April, bolstering the outlook for the wider recovery.

A recent string of upbeat reports about the U.K. economy has raised expectations the Bank of England could raise borrowing costs ahead of other central banks.

USD/JPY was trading at 102.33, holding above Wednesday’s lows of 102.02, while USD/CHF dipped 0.06% to 0.8797.

The Australian dollar slipped, with AUD/USD down 0.20% to 0.9269, while NZD/USD edged up 0.08% to 0.8622.

The commodity linked dollars shrugged off data on Thursday showing that China’s official manufacturing purchasing managers’ index ticked up to 50.4 last month from 50.3 in March, but exports orders declined sharply, adding to concerns over a slowdown the world’s second largest economy.

Elsewhere, USD/CAD rose 0.15% to 1.0975.

The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was at 79.59, after falling to a three-week trough of 79.48 earlier.