Euro slumps to four-year low versus greenback, all-time low against Swissie
By William L. Watts & Lisa Twaronite, MarketWatch
LONDON (MarketWatch) -- The U.S. dollar extended gains versus most major rivals other than the Japanese yen Friday, boosted as May nonfarm payrolls data showed a weaker-than-expected rise dominated by temporary government hiring.
The 431,000 increase in nonfarm payrolls reported by the Labor Department fell far short of the 538,000 consensus forecast produced by a survey of economists by MarketWatch. Moreover, 411,000 jobs were accounted for by hiring by the Census Bureau. Read about the data.
CUR_EURUSD 1.2036, -0.0125, -1.0279%
The move further weighed on European stocks and pushed U.S. stocks sharply lower at their open. The S&P 500 Index (SPX 1,084, -18.92, -1.72%) recently dropped 1.6% and the Dow Jones Industrial Average (DJIA 10,070, -185.61, -1.81%) slid nearly 180 points.
The dollar and Japanese yen tend to rise when risk appetite takes a hit, benefiting from the resulting safe-haven flows.
Against the greenback, the euro (CUR_EURUSD 1.2036, -0.0125, -1.0279%) traded at $1.2042, down from $1.2160 in late North American trade on Thursday. The single currency fell as low as $1.2018, a new four-year low.
The euro was under pressure ahead of the data. Analysts said remarks by a spokesman for Hungary Prime Minister Viktor Orbak added to weakness. Bloomberg reported that the spokesman warned that the economic situation was "grave" and that fears of a default were "no exaggeration." Read more about fears over Hungary's sovereign debt.
"These developments are important because the losses on the Hungarian debt will likely be shouldered by European banks that are already about to be hit by a second wave of [write-downs]," said T.J. Marta, chief market strategist at Marta on the Markets. "This, in turn, means that financial intermediation generally and globally will take another hit."
But Peter Rosenstreich, currency strategist at ACM in Geneva, said the euro's overall move lower was driven by a fall to a new all-time low versus the Swiss franc, after Swiss National Bank President Philipp Hildebrand made no mention of intervention in a speech in Interlaken, Switzerland.
The SNB has in the past frequently intervened to slow the euro's slide, traders say. The SNB, while never commenting on reports of intervention, has stated repeatedly that it was committed to slowing the franc's rise versus the euro currency and viewed intervention as part of its monetary policy.
Pressure had been building on the euro versus the dollar, "but when euro/Swiss hit the CHF1.4005 level and the SNB was nowhere to be seen, it just started taking out stops," Rosenstreich said.
The euro fell to as low as CHF1.3863 and changed hands in recent action at CHF1.3957, a loss of 0.7%.
The yen was lower against major rivals in Asian trading Friday but steadied after the ruling Democratic Party of Japan elected Naoto Kan as its leader, all but assuring that he will formally assume the prime minister's role.
The dollar (CUR_USDYEN 91.9100, -0.6500, -0.7021%) fell versus the Japanese yen to trade at ¥91.88, down from ¥92.59 in North American trading late Thursday. The euro (CUR_EURYEN 112.9300, +1.9000, +1.7112%) changed hands at ¥110.60, down from ¥112.58 Thursday.
The dollar index (DXY 87.81, +0.68, +0.78%) , which tracks the U.S. unit against a basket of six major currencies, rose to 87.82 from 87.22 late Thursday.
The British pound (CUR_GBPUSD 1.4547, -0.0070, -0.4789%) bought $1.456, down from $1.4611 Thursday.
The yen had lost ground in earlier activity after Japan's ruling party confirmed the selection of Naoto Kan as its leader.
Kan, who served as finance minister under the previous prime minister, Yukio Hatoyama, is known for having stated his preference for a weaker yen. But some analysts don't believe a Kan administration will lead to any significant changes to Japan's currency policies.
"We do not think Japan's [foreign exchange] policy will change even if Kan becomes the next prime minister, given how he has been serving as finance minister in charge of FX policy already," Tohru Sasaki, chief foreign-exchange strategist for Japan at J.P. Morgan Securities in Tokyo, said in a research note ahead of the DPJ election.
"If the change in Japan's prime minister is taking a part in driving current [Japanese yen] depreciation, at least that part of downward pressure on JPY should be only short-lived," Sasaki added.
Hatoyama resigned Wednesday, as support for his government waned.
