Economic data released today are likely to confirm the foreign exchange markets' broadly positive view of the dollar.

The U.S.

employment report

(

definition |

chart |

source

) for August came in weaker than expected. Nonfarm payrolls fell 105,000 and the unemployment rate edged higher to 4.1%. Average hourly earnings rose 0.3%.

All this market sensitive information is being absorbed in thin, pre-Labor Day trading. After the data, the dollar moved slightly higher against major currencies.

So far today, the sickly euro has struggled higher after seeing a new record low late yesterday. At the New York opening, the single currency is quoted around $0.8900, half-a penny above its lowest levels.

It remains to be seen if traders now see the euro as a good buy. Support for this view came from

Bank of France

Governor, Jean-Claude Trichet, who believes the euro is undervalued. "We have at the moment on the exchange markets an absolutely flagrant underestimation of the value of the euro," he said in a television interview.

The forex market is still digesting the implications of yesterday's decision by the

European Central Bank

to increase interest rates by 25 basis points to 4.5%. Market watchers had expected an increase of 25 to 50 basis points.

"Twenty five was the right number. In terms of the euro there's nothing that monetary policy can do," said Tamiko Bayliss of

Commerzbank

in London.

New data in Europe seems to help justify the smaller ECB rate hike. Euro zone

industrial output

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fell by 0.4% in June, while the annual rate fell to 3.8%.

"We're not going to see any change in market sentiment toward the euro and it looks very negative, " Bayliss said.

Sterling has gained ground in line with the euro and is opening at $1.4505. The euro is steady agasinst the pound at 61.10 pence. The majority opinion is that the

Bank of England

will leave sterling interest rates unchanged at 6% at its meeting next week.

U.K. manufacturing growth slowed in August. The

Chartered Institute of Purchasing

index of output fell to 51.7%, from 52.0% in July.

"The pound has been oversold and should sit around here for a couple of days. It's hard to say that it's been driven by fundamentals," Bayliss said.

The yen remains largely sidelined, with all attention on the dollar and the euro. This morning, it is unchanged at 106.40. With the euro's bounce back, the euro/yen cross has moved in favor of the single currency. The euro is at 94.75 yen, after seeing a low of 94.35 yesterday.

Dollar/Swiss franc is opening at 1.7410. The euro/Swiss franc rate is steady at SF1.5445.

The Canadian dollar has finally put together a decent rally and is moving towards an important target level. After closing at C$1.4740 last night, the Canada dollar is firmer at C$1.4680. The currency was given a solid boost on Thursday on news that Canadian

GDP

rose 4.7%, on an annualized basis, in the second quarter.

The Australian dollar lost some of the gains it recorded yesterday and is lower at the opening at $0.5725.

The New Zealand dollar is looking very out of favor and continues to lose ground. Today, it has lost a further 30 basis points to open at $0.4235. The forex market sees little to enthuse about in the outlook for the New Zealand economy. The NZ$ has fallen by almost 20% this year against the U.S. dollar.

The Australian dollar is trading at NZ$1.35, as local traders vote for the more vibrant regional economy.

The Indonesian rupiah is holding around 8,300, supported by strong export data.

In South Africa, the rand is edging down to the R7.00/ dollar level.

The Polish zloty is also soft around 4.40, as the market takes profit after this week's interest rate rise.

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