BLBG: Dollar Falls From Three-Week High After Report Shows Job Cuts
The dollar fell from a more-than three-week high against the euro after a private report showed U.S. job market deteriorated last month, reinforcing expectations for a long recession.
The dollar also depreciated versus the yen and the British pound as Fed policy makers said yesterday in the minutes of the Dec. 15-16 meeting that they saw “substantial” risks to the slumping economy and pledged to expand emergency loans if necessary. The South Korean won strengthened to the highest level against the dollar in 2009 as overseas investors increased purchases of nation’s stocks.
“The market pushed the euro down too far too fast,” said Steven Butler, director of foreign-exchange trading in Toronto at Scotia Capital Inc., Canada’s third-largest bank. “The market is still bearish on how long we’ll stay in the recession.”
The dollar weakened 0.6 percent to $1.3621 per euro at 8:18 a.m. in New York from 1.3536 yesterday when it touched $1.3313, the strongest level since Dec. 12. The U.S. currency fell 0.9 percent to 92.78 yen, from 93.65. The euro traded at 126.44 yen from 126.75.
The South Korean won strengthened 1.5 percent to 1,292.55 per dollar from 1,312.25. Global funds bought more of the shares than they sold for a sixth day, the longest stretch since April 2007, according to Korea Exchange data. The Kospi index of equities has advanced 9.2 percent this year following a 40 percent loss in 2008.
ADP Report
Companies in the U.S. eliminated 693,000 jobs in December after cutting payrolls by 250,000 the previous month, ADP Employer Services said today. The median forecast of a Bloomberg News survey of 24 economists was for a reduction of 495,000.
U.S. non-farm payrolls probably fell 500,000 in December, bringing last year’s decline to 2.4 million, the most since 1945, according to a separate survey before Labor Department figures due Jan. 9. The unemployment rate likely jumped to 7 percent, the highest level since 1993.
The dollar yesterday rose to the three-week high versus the euro on speculation the European Central Bank will lower its interest rates from 2.5 percent next week as the region entered a recession.
Economists in a Bloomberg survey forecast the European Central Bank will cut interest rates to 1.50 percent by June, and refrain from reducing borrowing costs beyond that. The Fed lowered its target rate between zero and 0.25 percent last month and pledged to keep the rate low.
‘Less Aggressive”
“The euro sell-off against the dollar in recent days seems to be running its course,” said David Powell, a currency strategist in London at Bank of American Corp. “The ECB’s less aggressive easing will continue to support the euro in the near term. We expect the central bank to cut by 50 basis points next week. But if you put that in contrast to the Fed, the ECB is much more restrained.”
Powell, who predicts the euro will rise above $1.40 by the end of this quarter, said the Fed is likely to keep its fed funds rate near zero into early 2010.
“What is clear from the rise in the euro-dollar from yesterday’s intraday low of $1.3313 is that market participants remain concerned over the scale of easing being undertaken by the Federal Reserve,” said Derek Halpenny, European head of global currency research at Bank of Tokyo-Mistsubishi Ltd. in London.
President-elect Barrack Obama, who takes office on Jan. 20, is pushing for tax cuts worth $500 for individuals, according to a House Democratic aide, and his economic stimulus plan includes the largest infrastructure investment since the 1950s.
Slowing Inflation
The euro traded at 90.52 British pence from 90.70. It fell by 5.3 percent in the last two days, the biggest drop since the currency’s debut in 1999, on speculation slowing inflation will give the ECB room to cut interest rates to tackle a recession.
European producer prices fell the most in 27 years in November as oil prices declined. Prices of goods leaving euro- area factories plunged 1.9 percent from the previous month, the sharpest decline since the data were first compiled in 1981, the European Union statistics office in Luxembourg said today. That was almost double the 1 percent drop economists forecast, according to the median of 20 estimates in a Bloomberg survey.
The pound briefly fell versus the dollar after Chancellor of the Exchequer Alistair Darling said the outlook for the U.K. economy is difficult, according to an interview with the Financial Times. Sterling was last quoted at $1.4916, little changed from yesterday.
The Bank of England will lower its benchmark rate by half a percentage point to an all-time low 1.5 percent when it announces a policy decision tomorrow, according to a Bloomberg survey.
“In the current climate, no responsible finance minister could say that’s the job done, far from it,” he said, according to the FT.
The British currency slid 23 percent against the euro last year, its biggest annual drop since the common currency’s debut, as U.K. policy makers cut rates by more than the ECB as the British economy entered its first recession in 17 years.
