Jobs Report Whips Dollar; Cheney Bruises

January 10, 2003
By Daniel Bases

NEW YORK - The dollar suffered a broad-based sell-off on Friday, falling to a three-year low against the euro after the December U.S. jobs report was significantly weaker than expected,

The dollar pared some of its losses incurred after the gloomy jobs report, but the selling resumed on what investors interpreted as "hawkish" comments from Vice President Dick Cheney regarding North Korea's decision to pull out of the nuclear Non-Proliferation Treaty.

Cheney said the decision was not unexpected, but the announcement was a "serious concern" to the world.

"There is hawkish war talk coming out of Cheney and I think that is going to keep the dollar under pressure," said Russell LaScala, chief dealer at Citibank in New York.

Investors are on edge after North Korea's decision to withdraw from the treaty despite the reclusive state's statement that it has no intention of building nuclear weapons. This added to the tensions created by the continuing weapons inspections in Iraq.

After the jobs report, the euro shot to a new three-year high of $1.0573 (EUR-), its best level since Nov. 1, 1999. In midday New York trade, the euro traded just underneath its fresh high, up roughly 0.75 percent compared with Thursday's New York close.

"The euro up-trend is intact. We are closing higher on the week given we are above the key $1.0510 area, so I think the dollar is going to remain under pressure going into next week as well," LaScala added.

CAUGHT OFF-GUARD

The dollar selling erupted after the U.S. Labor Department reported the economy lost 101,000 jobs last month. Economists had expected a gain of 22,000.

Adding to the gloom was a big revision in the job losses figure for November, to 88,000 from 40,000. The unemployment rate, based on a survey of U.S. households, held steady at 6 percent.

"The payrolls numbers were worse than expectations and that, along with what looks like a flip-flop in the conflict over North Korea, is contributing to a concerted effort to see the dollar lower," said John McCarthy, director of foreign exchange at ING Barings Capital Markets in New York.

"People are buying all the European currencies against the dollar and I see no reason for that not to continue. But there also are plenty of sellers of euro around -- it's not that anyone is short euros -- so it will be a slow grind higher for the euro," he said.

The euro also rose to its highest level against sterling in over three years on the back of the weak U.S. jobs data. The euro hit 65.75 pence (EURGBP-), up 0.70 percent on the day.

The euro held near the 3-1/2 year high of 126.13 yen (EURJPY-R), up more than 0.75 percent on the day.

The dollar did manage to hold the line against the yen. The Japanese currency was pulled lower by concerns over North Korea's nuclear move but given a boost after the jobs data. By midday the dollar traded at 119.36 yen (JPY-), up slightly on the day.

Safe-haven concerns drew the Swiss franc tantalizingly close to its four-year high against the dollar. The U.S. currency fell as low as 1.3809 francs (CHF-) before climbing back to 1.3825 francs, still down 0.65 percent on the day.

"The North Korea developments were not entirely unexpected, but clearly any kind of added potential for disasters puts added pressure on the dollar, creating a flight to safety such as the Swiss franc or investors bringing their money closer to home," said Tod Van Name, senior vice president in the FX group at Mizuho Corporate Bank in New York.

The dollar's decline has come in part due to the concerns over weapons inspections in Iraq.

The chief U.N. weapons inspector, Hans Blix, on Tuesday said that while inspectors had not found a "smoking gun" in their search for weapons of mass destruction, Baghdad's 12,000-page arms declaration failed to answer a great many questions.

"The market has already been short of dollars so it will be interesting to see how much more selling there is," Van Name said. "These were bad (jobs) numbers, much worse than expected. It adds to the uncertainty in the market and doesn't do anything to improve the weak dollar sentiment, and that is likely to continue."

The Australian dollar catapulted to a 2-1/2 year high of 58.31 cents (AUD-), a gain of more than 1 percent against the U.S. dollar, after the jobs report.


http://www.sanluisobispo.com/mld/sanluisobispo/business/financial_markets
/4913224.htm