Dollar holds near five-month highs as data supports

By Saqib Iqbal Ahmed

NEW YORK (Reuters) -The U.S. dollar held near a five-month high against a basket of currencies on Wednesday, as economic data assuaged concerns about the U.S. economy and the labor market, prompting investors to weigh the likelihood of another interest rate cut this year.

The dollar index, which measures the buck's strength against a basket of six rival currencies, was about flat on the day at 100.16, having risen 1.5% since last Wednesday, when the Federal Reserve cut rates but cooled expectations for further easing this year. The index is at its highest since late May.

Data on Wednesday showed U.S. private payrolls rose by 42,000 jobs in October, exceeding expectations of a 28,000 gain, according to a Reuters poll of economists.

The turnaround likely does not suggest a material shift in the labor market because some industries such as professional business services shed jobs for a third straight month, but it did help soothe worries about labor market weakness.

Separately, data showed the U.S. services sector activity picked up in October amid a solid increase in new orders.

"The ongoing hawkish repricing in rates and currency markets was given added momentum this morning when ADP reported a stronger-than-expected rebound in private sector job creation," said Karl Schamotta, chief market strategist with payments company Corpay in Toronto.

"With the preponderance of available data pointing to resilience in American labour markets, the case for an aggressive course of monetary easing is looking fairly flimsy here, and investors are growing reluctant to place big directional bets on lower yields ahead," Schamotta said. 

RISK OFF

The dollar, which had been helped in the previous session by a bout of risk aversion sweeping global financial markets, eased from session highs on Wednesday as investors crept back into riskier currencies. 

The risk-sensitive Australian dollar was up 0.3% to $0.651 on Wednesday, while the safe-haven yen, which gained as much as 0.5% earlier in the session, reversed course to trade down 0.3% against the buck. 

That left the dollar index at an inflection point, analysts said.

"A push through the low 100 level would suggest that the general USD rebound is likely to extend, potentially quite significantly over the next few weeks," FX strategists at Scotiabank said in a note.

"A stall and reversal from the low 100 area, meanwhile, implies a continuation of the broad consolidation range for the DXY in place since the middle of the year," they wrote. 

Investors were focused on a U.S. Supreme Court hearing where justices on Wednesday raised doubts about the legality of President Donald Trump's sweeping tariffs, a case that could test presidential powers and reshape the global economy and currency markets.

BANK OF ENGLAND TO MEET ON THURSDAY 

Sterling steadied after its recent selloff, last up 0.2% on the day on the dollar at $1.305, but still near multi-month lows on the dollar and multi-year lows on the euro. [GBP/] 

The Bank of England meets on Thursday, and with market pricing showing a roughly one-in-three chance of a 25 basis point rate cut, whatever the BoE decides could cause a knee-jerk reaction in the pound. 

The dollar was 0.1% lower against the Swedish crown after the Riksbank's decision to hold rates steady, as expected.

Norway's central bank was also scheduled to meet on Thursday. 

Leading cryptocurrency bitcoin rose 4% to around $103,995, after bouncing back from earlier losses. It slid 6.1% on Tuesday to below $99,000 for the first time since June 22.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Kevin Buckland and Alun John; Editing by Sam Holmes, Kim Coghill and Alex Richardson)