The Dollar changed little yesterday in New York after a day of indecisive trading ahead of U.S. employment data for July. The greenback fell sharply early in the session on the back of hawkish comments by European Central Bank President Jean-Claude Trichet following a widely anticipated 25 basis point rate hike by the central bank. The dollar’s drop against the euro was exacerbated by a surprise rate hike by the Bank of England, which drove sterling to its highest level in ten weeks, taking the euro along with it. The dollar reversed direction several times during the session, eventually settling at levels close to those late Wednesday. Investors are now awaiting Friday’s non-farm payroll report, which is expected to show a 150,000 increase for the month of July.

The dollar bounced back and forth in North American trading, dropping to its intraday lows during Trichet’s press conference, only to post a modest recovery shortly thereafter. Trichet’s comments, which were interpreted as hawkish by many in the market, were largely overshadowed by an earlier surprise decision of the Bank of England to increase its benchmark rate by 25 basis points. While a 25-basis-point hike by the ECB as well as hawkish comments from Trichet were already priced into the market, investors had been expecting the BOE to keep rates steady. Later in the session, the dollar showed little reaction to softer-than-expected U.S. factory orders in June and a weak Institute for Supply anagement non-manufacturing index for July. The U.S. employment report for July is expected to have more effect on currency trading, at least enough to cause a kneejerk reaction.

While a strong employment number would temper fears of downside growth risks, it could also undermine the argument that slower growth will take care of the recent uptick in inflation. Alternatively, though a weak employment report would increase fears that the economy is slowing below trend, it could eventually help restrain price pressures.