CURRENCIES: Dollar Falls On Better-than-expected ADP Jobs Data

The U.S. dollar fell against most of its major rivals Wednesday, as investors opted for high-yielding, riskier currencies after a U.S. jobs report increased investor sentiment.

Reducing the dollar's safe-haven appeal, U.S. stocks and some economic sensitive commodities such as crude oil and copper rose after the ADP employment index showed the U.S. private sector lost fewer jobs than expected.

"The dollar's weakness return to the fray as risk appetite is boosted by a smaller-than-expected decline of payrolls," said Ashraf Laidi, chief market strategist at CMC Markets.

"But interestingly, the weakness is not as pronounced as it seems as key levels are still held. This is all raising possibilities that Friday's jobs report will show a smaller decline in payrolls than expected."

In mid-afternoon trading, the euro rose 0.2% to $1.3341, while the British pound gained 0.5% to $1.5131. The dollar also weakened against the Japanese yen, down 0.7% to 98.25 yen.

The dollar index (DXY), a measure of the greenback against a basket of currencies, lost 0.2% to 83.826. Over 12 months, the dollar index is up about 14%.

U.S. private-sector employment fell by 491,000 jobs in April, the smallest decline since October, according to the ADP employment index released Wednesday.

The index comes two days before the government releases its estimate of April nonfarm payrolls. Economists surveyed by MarketWatch are looking for payrolls to drop by 580,000 in the government survey, which would be the smallest decline since October.

The dollar had risen against the euro earlier in the session after Standard & Poor's cut its ratings for five out of six rated German Landesbanks, financial institutions owned by regional government and local community savings banks.

The downgrade "contributed to risk aversion and pushed up the dollar," said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon.

Optimism no good for buck

"This is a risk-taking trade," said T.J. Marta, strategist and founder of research firm Marta on the Markets. "If people are pessimistic, they buy the dollar. If they are confident, they sell the dollar."

Investors remained cautious on the euro ahead of Thursday's European Central Bank meeting. Adding more risks in currencies trading, the U.S. government will release the results of its banking sector stress tests Thursday.

"People are still negative on the euro zone," said Win Thin, senior currency strategist at Brown Brothers Harriman. "They don't want to move too much ahead of the ECB meeting tomorrow."

Investors were also awaiting the results of bank stress tests due out Thursday. The results may show Bank of America would need roughly $35 billion in fresh capital - contrasting with reports just a day earlier that it wouldn't need more than $10 billion, the Wall Street Journal reported.

Daniel Tenengauzer, head of foreign-exchange strategy at Merrill Lynch, said the dollar will continue to strengthen through the third quarter of 2009.

"We still do not believe a quick recovery and reflation scenario, i.e., the kind of inflation that would be U.S. dollar-negative, is likely in the next few quarters. Commodity prices have stabilized, but without the sort of substantial boost that would signal immediate trouble for the dollar," he said in a note to clients.

Rate decisions in Europe are due Thursday, with the focus on the European Central Bank, which is expected to cut interest rates and possibly announce new measures designed to reflate the contracting euro-zone economy.

In the U.K., meanwhile, a gauge of the services sector rose to an eight-month high.

The CIPS/Markit purchasing-managers index rose to 48.7 in April from 45.5 in March.

Any level below 50, however, indicates an economy that's contracting.

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