Sun, May 05, 2002 - Page 10 News List

Dollar has biggest drop since January after US jobs report

BLOOMBERG , NEW YORK

The dollar had its biggest drop against the euro since January after a report showed the US jobless rate reached a 7 1/2-year high in April, fueling concern an economic rebound may be slower than projected.

Demand for the currency also waned as the Standard & Poor's 500 Index dropped to a six-month low this week on skepticism about the strength of the US expansion.

"People's perceptions of the US are not nearly as positive as they were," said Jonathan Clark, vice chairman of FX Concepts Inc, which invests US$4.5 billion in foreign exchange. "The US just isn't the place to invest that it used to be."

The US currency slid 1.56 percent to US$0.9173 cents per euro, from 90.32 yesterday, and reached its weakest level since Oct. 9.

It fell to ?127.01 from ?127.91, reaching the lowest point since March 7. The dollar fell for a fifth week against the euro, shedding 1.6 percent, and a third week against the yen, with a 0.7 percent loss.

The dollar will probably drop to at least 94 cents this month, which would be its weakest since February 2001, Clark said.

FX Concepts is betting the US currency will fall against the euro, Swiss franc, yen and Australian dollar, he said.

Traders sold dollars after the US said the unemployment rate rose to 6 percent, compared with expectations for a jump to 5.8 percent, from 5.7 percent in March.

International investors exiting US stocks and seeking a haven amid continued tension in the Middle East are selling dollars for European currencies, principally the Swiss franc, said traders. All three major US stock indexes fell on Friday.

Portfolio shifts

"You're seeing portfolio shifts out of the US and into other areas" by foreign investors, primarily toward Europe, said Peter Gerhard, head of foreign exchange at Goldman Sachs Group Inc. The dollar may dip to US$0.95, which would be its weakest level since January 2001, later this year, he said.

Some degree of weakening in the dollar is welcome news to US exporters, who have complained that their competitiveness has diminished relative to foreign rivals as the dollar has risen in recent years. It's still up 23 percent against the euro since the 12-nation currency's debut in 1999, making US-produced goods more expensive in Europe.

The dollar extended its declines today after a separate report showing that an index of US services, the biggest part of the economy, fell in April.

Statistics this week are underscoring that US growth will slow from its first-quarter rate of expansion of 5.8 percent, bringing it closer to other economies, said analysts. Growth will probably dip to a 3.4 percent pace in the second half of the year, according to the latest estimate of the Blue Chip Economic Indicators.

Some analysts said the dollar is weakening because of concern US inflation will pick up this year, given growing expectations the Federal Reserve will keep the US benchmark interest rate at a 40-year low of 1.75 percent in coming months.

Higher energy prices -- crude oil has risen by about a third this year -- are contributing to that concern, as is the drop in the dollar, which raises the cost of imports, they said.

Next week, the government is projected to report that US producer prices rose 0.4 percent in April, after a 1 percent increase in March.

"Foreigners are reluctant to buy more [US securities] in this type of environment," because of concern their returns will be eroded, said Harvinder Kalirai, senior strategist at State Street Corp in Boston.

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