Sun, Aug 08, 2004 - Page 10 News List

Greenback loses ground to it key rivals worldwide


The US dollar sank against key currency rivals after US job data came in Friday below expectations, casting a negative light on US economic growth and possibly changing Federal Reserve policy.

The single European currency shot up to US$1.2277 in European trading from 1.2056 late Thursday in New York. The US dollar traded at £110.55 against 111.75 Thursday.

The jobs report came in "below even the most pessimistic forecast," said Kathy Lien, chief strategist, Forex Capital Markets.

According to figures released by the US Labor Department, non-farm payroll jobs rose by a mere 32,000 in July, nowhere near the consensus forecast for an increase of around 240,000.

To make matters worse, the figures for May and June were revised downward significantly.

The news sent the US dollar plunging against major currencies before it finally stabilized around 1.2260 euros, compared with 1.2062 prior to the announcement.

The US dollar was off 0.95 percent versus the British pound, with sterling at 1.8408.

"The US employment report proved a huge disappointment to financial markets," a "made-to-order number for dollar bears," commented Michael Woolfolk, senior currency strategist at The Bank of New York.

The figures call into question a view expressed by US Federal Reserve Chairman Alan Greenspan that the recent series of weak US data was simply a temporary blip, analysts said.

Despite the shock, the Fed is nonetheless unlikely to be deterred from raising interest rates by a quarter point to 1.50 percent when it meets next week, one analyst insisted.

"We still expect the Fed to raise interest rates by 25 basis points to 1.5 percent next week," said Paul Ashworth, economist at Capital Economics.

"It has a very long way to go to get rates back to a neutral stance and, with early indications that payroll growth will pick up again, it will want to set this temporary setback aside and get on with the job," Ashworth said.

The focus, however, is really on the extent to which the Fed could raise rates at its remaining meetings this year.

It is to meet four times between now and Christmas, and prior to the release of Friday's data, many market players had expected a rate hike at each of these meetings.

"Beforehand, people had been expecting the Fed to raise rates three or four times before the end of the year. Now they will be thinking maybe in terms of only two hikes," said Gary Noone, currency analyst at MMS.

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