Sun, Aug 06, 2006 - Page 10 News List

Weaker-than-expected US jobs news sinks greenback

DROOPING DOLLAR The US dollar was lower against other major currencies on an anemic jobs report that fueled expectations of a halt to interest rate hikes

AFP , NEW YORK

The US dollar slumped on currency markets on Friday as traders betted that the US Federal Reserve would bring a pause to its cycle of interest rate hikes next week.

The euro surged to US$1.2874 around 2100 GMT, up from US$1.2805 late in New York on Thursday.

The single European currency had earlier shot past the US$1.29 mark to reach US$1.2909, its highest level since June 6.

The gains were largely promp-ted by the release of a monthly survey of the US jobs market which revealed that employment growth slowed considerably last month to 113,000 new positions.

Economists had expected nonfarm payrolls growth of 145,000 last month.

The pound leapt to US$1.9086, up from US$1.8880 late on Thursday, after receding from a high of US$1.9109 in earlier trading, its highest level against the dollar in seven months.

The greenback meanwhile slumped to ?114.43, compared with ?114.97 late on Thursday.

Some traders said the US dollar could weaken further still, especially if the US central bank suspends its rate hiking cycle which has lifted the fed funds rate to 5.25 percent.

The world's largest economy slowed markedly in the second quarter to a growth pace of just 2.5 percent, from the first quarter's red-hot expansion of 5.6 percent.

"The greenback could begin a protracted period of weakness as its primary benefit, an ever-rising interest rate yield, will now disappear from the investment horizon," said Boris Schlossberg of FX Capital Markets.

For foreign investors, the US dollar's appeal wanes if rates fail to rise as returns on their US holdings diminish.

The British pound was still flying high after the Bank of England on Thursday unleashed a surprise hike in interest rates to 4.75 percent.

The European Central Bank also announced a rate hike on Thursday, lifting its "refi" refinancing rate to 3.0 percent.

All eyes are now on the Fed ahead of Tuesday's meeting, but opinion is divided on whether its members will back a rate hike or suspend the recent rate hiking cycle.

"We look for them to leave the rate unchanged for a long period and not just a short-term pause," Societe Generale economist Stephen Gallagher said.

However, SW Bach analyst Peter Cardillo said: "The surprise could be no pause. That could still happen."

At 2100 GMT, the US dollar bought 1.2233 Swiss francs from 1.2308 late on Thursday.

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