Dollar Tumbles Against Euro After U.S. Economy Adds Only 21,000 Jobs
March 5 (Bloomberg) -- The dollar tumbled against the euro in New York after the U.S. economy added fewer jobs in February than forecast, causing traders to trim expectations for a Federal Reserve interest rate increase later this year.
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Traders marked down the dollar by a full cent against the euro within two minutes of the report, as they bet the Fed will keep its target interest rate at 1 percent. The rate, the lowest since 1958, is half the European Central Bank's 2 percent target.
``The first reaction out of most people was to scratch their eyes in disbelief,'' said Jeremy Fand, senior proprietary currency trader at WestLB AG in New York. ``Every signal I have tells me the dollar is to be sold.''
The U.S. currency weakened to $1.2364 per euro at 9:52 a.m. in New York from $1.2203 late yesterday, according to EBS prices, trimming its gain for the week to 1 percent. The dollar fell to 111.02 yen from 111.12, and sank against 12 other major currencies. Even with today's drop it is poised for a third week of gains against the euro.
U.S. companies added 21,000 workers last month, while the jobless rate held at 5.6 percent, the Labor Department said. The median forecast of economists polled by Bloomberg News was for an increase of 130,000 new non-farm jobs, after an increase of 112,000 in January.
The report halted a four-day dollar rally, the longest since January, and jolted investors who had been betting on stronger payroll growth after an industry survey Monday showed factory jobs at their highest since 1987.
``There were no prices in the currency market'' until about the $1.23 level as traders sought counter-parties that would buy dollars, Fand said.
`In Shock'
``Traders were in shock. It was a number that very few people envisioned,'' said Michael McGuinness, senior director of foreign exchange in New York at American Express Bank, a unit of the world's biggest corporate travel agency. ``There's going to be very little discussion about the Fed raising rates any time soon, so the dollar will probably be vulnerable against the European currencies,'' reaching as weak as $1.25 later today.
In a sign investors scaled back bets the Fed may raise rates later this year, the September Eurodollar futures contract yielded 1.33 percent, down from 1.47 percent yesterday. The futures are a gauge of three-month lending rates, and their yields have averaged 24 basis points higher than the Fed's target rate during the past 10 years.
Pre-set orders to sell dollars were in place at $1.2350 per euro, accelerating the dollar's decline, said Nick Parson, global head of currency research at Commerzbank AG in London.
Before today's drop the dollar had risen 6 percent against the euro since dropping to a record low of $1.2930 last month.
Yen Sales
``These are good levels to get into the euro, at least for a move to $1.25 or higher,' said Meg Browne, a currency strategist at HSBC Bank USA in New York.
In Japan, Finance Minister Sadakazu Tanigaki today said the yen is falling against the dollar because traders and investors are ``correcting'' their yen-buying positions.
The yen has fallen 5.5 percent since trading at a 41-month high of 105.17 on Feb. 11. It fell yesterday even after a Ministry of Finance report showed Japanese companies were optimistic for a second quarter between January and March.
``Japanese authorities would be pleased to see the yen above 115,'' said Monica Fan, a currency strategist at RBC Capital Markets in London. ``They've got no intention of letting up on their intervention.''
Japan sold 10.5 trillion yen ($95.3 billion) in the two months ended Feb. 26 to protect exporters, more than half the record amount spent last year.
`Planned Landmines'
The lower house of Japan's parliament today approved a government request for 40 trillion yen in extra funds to help weaken the yen in the fiscal year beginning April 1. The move comes after parliament last month endorsed a 21 trillion yen increase in the limit on currency sales this fiscal year.
``The BOJ has parked a number of bids, or planned landmines, to absorb any fall below 110'' yen to the dollar, said Uwe Parpart, senior market strategist in Hong Kong at Bank of America Corp. The yen may fall to 113 next week, he said.
Hiroshi Watanabe, head of the international department at Japan's Ministry of Finance, yesterday said it will take ``a little while'' before the yen's three-week slide ends. The Bank of Japan sold the currency in record amounts last year to stem its appreciation.
Zembei Mizoguchi, vice finance minister for international affairs, declined to comment on whether Japan was selling yen.
The yen was at 135.62 per euro, from 135.57 yesterday, when it had its biggest drop in more than a week.
To contact the reporter on this story:
Mark Tannenbaum in New York newsroom mtannen@bloomberg.net
Monee Fields-White at mwhite@bloomberg.net.
To contact the editor of this story:
Bob Burgess at bburgess@bloomberg.net.
Last Updated: March 5, 2004 09:57 EST |
