Dollar falls sharply against euro

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Dollar falls sharply against euro
Posted: 5:09 AM | Sept. 03, 2005

Agence France-Presse

LONDON -- The dollar took a dive against the euro Friday, at one point hitting its lowest level since late May on fears for the hurricane-hit US economy, but later gained some ground on positive US job creation figures.

The single European currency in late trade was at 1.2540 dollars against 1.2500 late Thursday in New York. The euro earlier in the day jumped to 1.2589, its strongest showing against the greenback since May 27.

The dollar was meanwhile trading at 109.71 yen after 109.78 on Thursday.

"A solid employment report that shows no sign of a retrenchment in hiring," was how Drew Matus, financial economist at Lehman Brothers, described an announcement of the Department of Labor.

Official figures from the department showed that non-farm payrolls increased by a seasonally adjusted 169,000 in August. Analysts had foreseen 190,000 new jobs in August.

The non-farms payroll figures showed the slowest rate of employment creation since May. But the Labor Department revised up the July figure strongly to 242,000 from 207,000 given previously.

Employment is up 1.43 million so far in 2005, an average of 178,000 per month.

Further details in the report showed that average hourly earnings increased by two cents or 0.1 percent to 16.16 dollars an hour.

That overall picture proved enough to persuade currency traders to pocket some of the gains made in their euro and pound trades against the dollar this week.

But analysts said sentiment remained against the US currency, especially if the market continues to scale back US rate hike expectations.

An emergency meeting between President George Bush and US Federal Reserve Chairman Alan Greenspan on Thursday fuelled market speculation that the central bank could halt its rate-rise campaign much sooner than expected.

Going by the Fed funds futures rate, there is only a 70 percent chance of a quarter point rate hike in the United States when the Fed makes its decision on Sept. 20.

Players are also starting to bet that US rates will go no higher than 3.75 percent. Previously hikes up to 4.00 percent or 4.25 percent had been expected.

The dollar was in the doldrums for much of the last couple of years, due to concerns over the financing of the US budget and current account deficits but surged to 10-month highs in early July in the wake of political crises engulfing the EU as well as a greater emphasis on developments in yield differentials.

"There is plenty of speculation that the economic fallout from Katrina and more importantly, the coming oil price shock, will keep (Federal Reserve policymakers) from tightening when (they) meet on September 20," said Mark Austin, global head of Forex strategy at HSBC.

The euro was changing hands at 1.2540 dollars against 1.2500 late on Thursday in New York, 137.54 yen (137.25), 0.6815 pounds (0.6811) and 1.5406 Swiss francs (1.5422).

The dollar stood at 109.71 yen (109.78) and 1.2287 Swiss francs (1.2326).

The pound was being traded at 1.8402 dollars (1.8348), 201.81 yen (201.42) and 2.2607 Swiss francs (2.2639).

On the London Bullion Market, the price of an ounce of gold rose to 443.60 dollars from 439.60 late on Thursday.

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