How Bad Of ADP??

Dollar wobbles as ADP report suggests weak US non-farm payrolls

LONDON (Thomson Financial) - The dollar had a wobble after indications that the crucial US jobs report due Friday will come in weak.

In data out this afternoon, the ADP national employment report showed US companies added 48,000 jobs in July, far lower than the 100,000 expected by analysts.

The report excludes government jobs, which rose by 22,000 -- suggesting that non farm payrolls due Friday will still fall short of the 135,000 predicted.

The data led some analysts to revise down their forecasts for Friday's headline figure.

'Considering the ADP's 66 pct track in predicting the direction in private payrolls reported by the US Department of Labor, today's disappointing figure causes us to downgrade our forecast for non-farm payrolls to 80,000 from June's 132,000,' said Ashraf Laidi at CMC Markets.

The ADP report dented the dollar which had otherwise been enjoying a decent performance amid safe haven type bids against a backdrop of rising risk aversion across the board.

Sentiment in wider markets dived after reports of more hedge funds in trouble amid the continuing fall-out in US sub-prime mortgages. To make matters worse, American Home Mortgage Investments said that it could not meet debt service obligations. Shares of the company, which makes mortgages and bundles them into securities, plummeted by over 90 pct. The benchmark DJIA index slumped over 100 points overnight.

'The dollar continues to trade well at times of equity market stress,' said Daniel Katzive at UBS.

The yen meanwhile was well off day highs after the rout on stock markets.

The Japanese unit has been benefiting from increased aversion to risk, which in turn led to an unwinding in carry trades, where players take advantage of low interest rates in the second biggest economy to invest where yields are higher, such as New Zealand and Australia.

'When currency traders are closely watching equities, the intra-day correlation between the rising yen and falling equities is playing an increasingly vital role in repricing risk in forex markets,' said Laidi at CMC Markets.

The Australian and Kiwi dollars were among the biggest losers, while the euro and pound also came under pressure. The Swiss franc, another funding currency for carry trades, also enjoyed good gains while the dollar found fresh safe haven type flows.

'High yield/emerging market currencies have, as would be expected, suffered most heavily, with the dollar catching a bid almost by default,' said Steve Pearson at HBOS.

Elsewhere, the pound got a short-lived boost from unexpectedly strong UK manufacturing PMI report.

The purchasing managers' index on UK manufacturing activity from the Chartered Institute of Purchasing and Supply jumped to a three-year high of 55.7 in July from 54.7 in June, revised up from the previous estimate of 54.3.

The reading was way above the consensus forecast of analysts polled by Thomson Financial News, who had predicted a fall to 53.8.

The strong survey will put a rise in Bank of England interest rates to 6.00 pct in the autumn firmly back on the cards.

'Not that the bond or the forex markets are used to paying much attention to the data in the current environment, but if anything, today's report could rekindle rate hike speculation,' said Jodie Tiller at CIBC Markets.

London 1308 GMT London 0810 GMT