Oct. 8, 2004
(Bloomberg)
The dollar fell by the most in two months against the yen and tumbled versus the euro after hiring by U.S. employers unexpectedly slowed in September, damping confidence in the economy and expectations for a quicker pace of Federal Reserve interest-rate increases.
Demand for the U.S. currency waned after the Labor Department said the economy added 96,000 non-farm jobs last month, from a revised gain of 128,000 in August. The statistics dim speculation the economy gained momentum after a slowdown in job growth in the second quarter.
``We're definitely still in the soft patch,'' said Chris Melendez, president of Tempest Asset Management in Newport Beach, California. ``The dollar's still a sell.''
Against the euro, the dollar fell by the most since Sept. 30, to $1.2392 at 8:45 a.m. in New York, from $1.2285 late yesterday, according to electronic currency-trading system EBS. It dropped to 110 yen, from 111.23. The losses trimmed the dollar's weekly gain to 0.2 percent against the euro. It lost 0.5 percent against the yen.
Expectations were for an addition of 148,000 jobs in September, based on the median estimate of 74 economists surveyed by Bloomberg News. The jobless rate held at 5.4 percent.
``It reduces conviction on Fed tightening because the Fed wants to see job growth picking up,'' and slower interest-rate increases undermine the dollar, said Todd Elmer, a foreign- exchange strategist in New York at Barclays Capital Inc., before the report was released.
McTeer and Trade
Traders and investors expected U.S. businesses added about 109,000 jobs in September, an auction of economic derivatives before the report indicated. The first of two such auctions yesterday indicated expectations for 134,000 jobs.
The dollar fell earlier today after Robert McTeer, president of the Federal Reserve Bank of Dallas, said the U.S. current- account deficit, at a record $166 billion, may cause the U.S. currency to weaken.
While foreign investors now ``finance'' the gap, ``theoretically some day that process will come to an end, theflows will turn against us and there will be a crisis that will result in rapidly rising interest rates and a rapidly depreciating dollar,'' McTeer said in a speech late yesterday in New York.
McTeer is the third Fed official in a month to link the dollar to the deficit. San Francisco Fed President Janet Yellen and Kansas City Fed President Thomas Hoenig also signaled concern about the current-account gap. The Fed doesn't set U.S. currency policy, which is managed by the Treasury.
Rate Expectations
McTeer on Oct. 5 said the Fed can keep raising rates at a ``measured'' pace, after increasing its benchmark overnight bank- lending rate three times since June to 1.75 percent. The European Central Bank kept its benchmark rate at 2 percent yesterday.
All 33 of the economists surveyed by Bloomberg News expect the Fed to raise its target rate a quarter-point at its next meeting on Nov. 10. Higher interest rates may increase demand for dollar-denominated debt.
The dollar rallied 1 percent versus the euro and 0.9 percent against the yen after the government said on Sept. 3 that job growth accelerated to 144,000 in August from a revised 73,000 in July.
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