Sun, Aug 05, 2007 - Page 10 News List

Greenback slumps against euro

AFP , NEW YORK

The US dollar slumped to a 10-day low against the euro on Friday after US data showed a weaker-than-expected rise in new jobs, underlining sluggishness in the world's biggest economy.

The jobs report sent the euro climbing as high as US$1.3791, its highest level in 10 days.

Around 9pm GMT, the euro was at US$1.3775, up from US$1.3703 in New York late on Thursday.

The US Labor Department reported below-par job growth of 92,000 new positions in July, the weakest figure since February and sharply below economists' consensus forecast of 135,000.

The national unemployment rate also crept up unexpectedly by 0.1 percentage point to 4.6 percent.

The numbers fueled fears that problems in the weak US housing sector are spreading to the labor market, which until recently had been one of the strongest parts of the economy.

"Employment has held up well, but is showing some cracks to the armor," said Andrew Busch, an analyst at BMO Capital Markets.

"The 12K [12,000] drop in construction jobs will provide some more anxiety to the jittery housing market/subprime," Busch said, referring to worries about subprime, or credit-risky, mortgage lending that has led to a surge in foreclosures.

"Overall, this report is slightly bearish for equities and the buck," he said.

Separately, a survey showed the US services sector is cooling, fueling fears of a stronger than expected slowdown in the economy.

The US Institute for Supply Management (ISM) said its service sector business index fell to 55.8 last month from 60.7 in June. It was also well below predictions of a more modest drop to 59.

"The weaker-than-expected ISM report fed into dollar selling following the non-farm payrolls disappointment earlier," Michael Woolfolk at Bank of New York Mellon said.

Rising risk aversion due to the fallout in the US credit market had previously helped the dollar find safe-haven bids. Those bids are receding, in turn exposing the dollar to a renewed bout of weakness.

"Dollar strength earlier this week was largely attributable to safe-haven flight to safety and repatriation of foreign holdings by US investors. The market's growing sensitivity to economic information suggests safe-haven flows into the US may be subsiding," Woolfolk said.

Calyon analysts added that "participants may read soft jobs data as supporting a rate cut" some time soon.

The US Federal Reserve policymakers are to meet Tuesday to consider interest rates and the health of the US economy. The Fed has held its key short-term federal funds rate at 5.25 percent for 13 months, saying keeping inflationary pressures at bay is its top priority.

The euro, meanwhile, has been buoyed against the US dollar after European Central Bank (ECB) president Jean-Claude Trichet warned that "strong vigilance" was needed against inflation.

That raised expectations of a quarter-point rate hike in the eurozone to 4.25 percent in September.

"The use of `vigilance' is deemed a code word for `We intend to hike rates at the next meeting' ... the focus now is on whether the September move will be the last," said Stuart Bennett, eurozone economist at Calyon.

The ECB kept its benchmark lending rate steady at 4 percent on Thursday, as was widely expected.

In late New York trading, the US dollar was at 1.1896 Swiss francs, down from SF1.2044 late on Thursday.

The pound stood at US$2.0406, up from US$2.0371.

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