Dollar Tumbles Against Euro as U.S. Creates Almost No Jobs

Jan. 9, 2004

(Bloomberg) -- The dollar tumbled to a record low against the euro after the U.S. economy added almost no jobs last month, leading investors to conclude the Federal Reserve will wait even longer to raise interest rates.

The dollar lost more than a cent within five minutes of the report of 1,000 new jobs at 8:30 a.m. in Washington, as economists had forecast 150,000 jobs. Traders dumped dollars as the statistics pushed back the expected timing of a Fed rate increase, giving investors less incentive to hold dollars.

``People are going to continue to be short dollars,'' said Lauren Germain, a currency strategist in New York at Bank of America Corp. ``We think it's more likely it will reach $1.30 sooner rather than later.''

The U.S. currency fell to $1.2820 per euro at 9:38 a.m. in New York, from $1.2767 late yesterday. In the minutes following the employment report the dollar fell as low as $1.2853 against the 12-nation European currency, its weakest since the euro's January 1999 debut.

After the U.S. employment report, the Bank of Japan sold yen and bought dollars, according to a trader at a bank that deals with the central bank.

The central bank sold yen at about 1:35 p.m. in London (8:35 a.m. in New York) after it rose to 106.46 from 106.96 before the jobs report, said the trader, who spoke on condition not to be further identified. The transactions, which followed earlier sales in Tokyo, weakened the yen to about 106.75 from 106.18 late yesterday in New York.

Fed Rate Expectations

Futures traders ratcheted back expectations the Fed would raise its 1 percent target rate for overnight bank lending by mid- year, after the Labor Department said U.S. nonfarm employers added only 1,000 workers last month, while the jobless rate fell to 5.7 percent. The median forecast of economists polled by Bloomberg News was for an increase of 150,000 new nonfarm jobs, after a revised 43,000 increase in November.

The Fed's target rate is half the benchmark rate in the euro region, and compares with the Bank of England's 3.75 percent rate and Canada's 2.75 percent rate. A dozen major currencies rose against the dollar today.

``The labor market is the one key area of the economy that continues to lag,'' said Alex Beuzelin, a currency analyst in Washington at Ruesch International, which conducts $10 billion in foreign-exchange transactions annually, before the report's release. ``The dollar is going to continue to be saddled with unattractive interest-rate differentials.''

Japan Stems Yen's Rise

Earlier today the yen had its biggest drop in a month after traders said the Bank of Japan sold its currency for at least the fourth time this week. The traders deal with the central bank and asked not to be named.

Japan, which spent record sums last year to stem the yen's gain and protect exports, may have bought as much as $5 billion today, said Toru Umemoto, a currency strategist in Tokyo at Morgan Stanley. The currency has risen 10 percent against the dollar in the past year as a recovering economy draws in capital.

``Intervention has been quite aggressive,'' Eisuke Sakakibara, who directed Japan's foreign-exchange policy from 1997 to 1999, told Bloomberg News in a televised interview in Tokyo. ``But this kind of continuous, defensive, predictable intervention has its limit in effectiveness.''

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