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Sun, Oct 08, 2006 - Page 10 News List

Dollar hits multi-month highs against euro, yen

FOREX An upward revision of the US job creation figure for August helped offset headline disappointment in the wake of the latest Labor Department report, traders said


The US dollar rose to its best reading since July against the euro and a seven-month high on the yen on Friday as the market looked at underlying strength in what seemed like a weak US employment report.

The euro fetched US$1.2598 at 9pm GMT, against US$1.2691 late on Thursday in New York. That was the strongest reading for the US dollar since late July.

The US dollar meanwhile was trading at ?118.98 after ?117.63 on Thursday, the best level for the greenback against the yen since March.

At first sight, a report from the Labor Department that the US economy created only 51,000 jobs last month, its weakest showing since October last year and well below market expectations of 120,000, appeared to be negative for the US dollar.

But dealers later said that the August job creation figure had been revised up to 188,000 from 128,000, while the reading for July went from 121,000 to 123,000.

"A net upward revision of 62,000 to the gains in July and August went a long way to offsetting [the headline] disappointment, even though the trend is still downwards," said Paul Ashworth, senior US economist at Capital Economics.

Analysts also said that Friday's release, which contained upward revisions to payroll gains between April last year and March this year, further cemented expectations that the US Federal Reserve will keep its benchmark Fed funds rate unchanged at 5.25 percent for the third meeting running on Oct. 25.

"What this report does is effectively take any chance of a near-term rate cut by the Fed off the table," Bank of New York analyst Michael Woolfolk said.

"With the US economy at full employment and unit labor costs well-above the Fed's comfort zone, any Fed move over the next six months will be a rate hike, not a rate cut," he added.

The report "has turned the market very dollar bullish," said Kathy Lien at Forex Capital Markets, who said a big factor for the market was that "810,000 jobs were undercounted in the monthly payrolls report for the 12 months up to March this year, which is the largest revision ever."

The dollar was also supported against the euro on mounting expectations the European Central Bank (ECB) will stop raising borrowing costs once it has increased its key refi rate another quarter point to 3.5 percent in December.

The ECB has been steadily raising rates since last December to rein in inflationary pressures, partly associated with a pick-up in economic growth in the 12-nation single currency zone.

The Fed called a halt to its two-year rate-hike cycle in August, partly over fears that any further tightening would push the US economy into recession.

Policymakers suggested the cooling economy would eventually lessen inflationary pressures. Energy prices now seem to be supporting this view, as well as boosting economic growth.

The US economy grew at a 2.6 percent annual pace in the spring -- less than half the pace of the first three months of the year.

In late New York trade, the US dollar stood at 1.2603 Swiss francs after SF1.2516 on Thursday.

The pound was being traded at US$1.8709 from US$1.8790 late on Thursday.

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