FOREX-Dollar underpinned by Fed view, yen pressured

SYDNEY, May 5 (Reuters) - The U.S. dollar was a shade softer on Monday but held on to of most of last week's gains, supported by speculation the Federal Reserve will not need to cut interest rates again.

The euro had drifted to $1.5432 in early Asian trade, not far from Friday's late $1.5424 and well off April's record highs around $1.6018.

The yen remained weak as returning risk appetite encouraged borrowing yen at low rates to invest in high yielding currencies like the Australian and New Zealand dollars. One dollar bought 105.34 yen, far above the March trough of 95.71.

Activity was light with markets in Tokyo and London off for holidays and traders now waiting to see if a survey on the U.S. services sector later in the session proves as resilient as other recent figures.

The dollar firmed on Friday after U.S. payrolls fell by a surprisingly small 20,000 in April, while the jobless rate actually dipped to 5.0 percent.

"The drop in the unemployment rate has strengthened the market's conviction that the Fed is done," said Darren Gibbs, an economist at Deutsche Bank.

"For the first time this year near-ahead Fed funds expectations are flat with the actual Fed funds rate," he added. "What's more, the market is pricing a decent chance of a rate hike by the end of the year."

However, he suspected the April payrolls reported overstated the true health of the labour market and expected a big negative swing in May. If correct, that meant the market was premature in pricing out the chance of further easing. Still, the next payrolls report was a month away and this week was relatively light for major U.S. economic data, leaving the dollar's recent uptrend intact for now.

The New York Board of Trade's dollar index, which charts the dollar's performance against a basket of six currencies, was steady at 73.456 on Monday, having hit two-month peaks at 73.698 .DXY last week.

From: http://www.reuters.com/article/marketsNews/idUSSYD1979520080504?rpc=401&