Wednesday December 5, 2007 - 23:11:22 GMT
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Reuters - www.reuters.com
FOREX NEWS-Private jobs report buoys dollar, euro stumbles
Wed Dec 5, 2007 4:36pm EST
(Adds details, updates prices)
By Lucia Mutikani
NEW YORK, Dec 5 (Reuters) - The dollar scaled a one-month
peak against a basket of currencies on Wednesday after a robust
private jobs report suggested the U.S. labor market remained
relatively healthy despite an economic slowdown.
The euro recorded its biggest single-day decline against
the dollar since July 2005, with traders saying the market was
expecting European Central Bank officials to tone down their
rhetoric on inflation after Thursday's policy meeting.
The surprise jump in private-sector employment in the ADP
report fanned expectations of an above-forecast nonfarm
payrolls report on Friday, prompting the market to trim chances
of a 50-basis-point interest rate cut by the Federal Reserve
Worries that the Fed could opt for a deeper cut after the
Bank of Canada surprised markets with a rate cut on Tuesday
were blamed for the dollar's decline in the previous session.
"We can attribute the dollar's strength today to the ADP
report. The sharp upside surprise to the ADP jobs number
suggests that we could see a better-than-forecast reading of
Friday's nonfarm payrolls number," said Omer Esiner, foreign
exchange analyst at Ruesch International in Washington.
"This in turn would lower the risk of a 50-point cut by the
Fed on Tuesday. Relative strength in the jobs market here in
the U.S. is something that can keep the Fed from cutting rates
In late New York trade, the euro traded 1.1 percent lower
at $1.4595 <EUR=>, after dipping to a session trough of
$1.4592, according to Reuters data.
The New York Board of Trade's U.S. dollar index .DXY,
which measures the greenback's value against a basket of six
currencies, traded 1.1 percent higher at 76.459, after earlier
hitting a one-month high of 76.528.
Against the dollar, sterling fell 1.6 percent to $2.0258
<GBP=> on mounting speculation the Bank of England, which meets
on Thursday, would cut its benchmark interest rate.
"Sterling could certainly be dragging the euro down.
Generally, the dollar is going to strengthen over the next
couple of weeks," said Mark Meadows, currency strategist at
Tempus Consulting in Washington.
"We think the Fed will cut by 25 basis points and not 50
and will likely indicate to the market a very neutral
data-dependent stance, which should be dollar-positive."
Rate futures indicate traders see a 38 percent probability
of a half-percentage point cut, down from a 54 percent chance
just before the ADP data. A 25-basis-point cut in the fed funds
rate to 4.25 percent has been fully priced in.
Demand for the U.S. currency started to rise earlier in the
session as a rebound in global equity markets prompted
investors to buy back dollars after two days of declines.
The dollar rose to a session peak of 110.96 yen <JPY=> as
short-term players took profits on the yen's rise from the
previous two days -- a move which had been fueled by worsening
credit market conditions before the usually illiquid year-end.
It was trading at 110.94 yen, up 1.1 percent on the day.
Expectations that the Bank of England will reduce its key
lending rate to 5.5 percent pushed sterling to a 4-1/2-year low
against the euro. This followed below-forecast service sector
and house price data.
"The greater likelihood is for the BOE to cut 25 basis
points, with the ECB feeling obliged to prepare the market with
a warning shot for a possible January rate cut," said Michael
Woolfolk, senior currency strategist at Bank of New York
"If one or both of these developments are borne out, the
dollar recovery could get some legs in earnest, taking the euro
as low as the $1.45 barrier."
The Australian dollar <AUD=> fell after the Reserve Bank of
Australia kept interest rates at 6.75 percent, as expected, but
said global growth could ease in 2008. It was trading down 0.4
percent at US$0.8693.
(Editing by Jonathan Oatis)
journalists are subject to the Reuters Editorial Handbook which
requires fair presentation and disclosure of relevant inter
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