Saturday February 2, 2008 - 01:48:22 GMT
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Reuters - www.reuters.com
FOREX NEWS-Mixed data leaves dollar up vs euro, sterling
(Updates prices, adds Australian, Canadian, New Zealand dollar
By Steven C. Johnson
NEW YORK, Feb 1 (Reuters) - The dollar rose against the
euro and sterling on Friday after stronger-than-expected
manufacturing data offset news showing the U.S. economy shed
jobs last month for the first time in 4-1/2 years.
The U.S. labor market contracted in January for the first
time since August 2003, according to government data on Friday.
That initially sparked widespread dollar selling.
But some analysts said a weakening employment trend was not
new and therefore prompted dealers to take profits on their
bets against the dollar shortly afterward.
This accelerated after the Institute for Supply Management
said its January manufacturing index reflected expansion,
obscuring the outlook for the economy in general and injecting
some doubt into the argument that a recession is looming.
The euro fell to $1.4796 <EUR=>, down half a percent from
late Thursday, reversing course after touching a two-month high
of $1.4952 earlier in the session, according to Reuters data.
"This data really is making for some very choppy trading,"
said Shaun Osborne, senior currency strategist at TD Securities
in Toronto. "The ISM index in particular muddies the outlook."
Sterling steadily fell throughout the New York session and
was last down 1.1 percent at $1.9660 <GBP=>.
The dollar rose 0.2 percent on the day to 106.55 yen
<JPY=>, continuing to move in lock-step with equity markets.
Some analysts said Friday's price action was short term in
nature and merely a reaction to headlines. Their medium-term
view was for continued weakness in the dollar because of U.S.
"There's a lot of short-term profit-taking going on," said
Dustin Reid, a currency strategist at ABN AMRO in Chicago.
"More dollar weakness (is expected) in the days ahead, though.
This is only a short-term bounce."
However, after a week chock-full of mixed U.S. economic
data, a steady stream of negative news from the housing and
banking industries, and even a Federal Reserve reduction in its
benchmark interest rate, the dollar was only marginally lower.
With the U.S. federal funds rate now the third-lowest among
major economies, the appeal of holding dollar-denominated debt
should be driving investors away from the greenback.
For example, the yield spread of the 2-year euro-zone bond
over the 2-year Treasury note widened to 135 basis points on
Friday, blowing out by 40 basis points in January alone.
The European Central Bank, meanwhile, continues to dwell on
inflation and has not hinted at plans to slash benchmark
interest rates, which at 4 percent stand a full percentage
point above U.S. rates.
But the euro has repeatedly tried and failed to capitalize
on dollar weakness and has yet to test an all-time high of
$1.4966 hit late last year, according to Reuters data.
"The more the dollar deflects everything thrown at it, the
more convinced I become that the currency is putting in a major
bottom," said David Gilmore, partner at Foreign Exchange
Analytics in Essex, Connecticut.
He added that it's "only a matter of time before the
currency market punishes other currencies. For the euro, this
punishment will come in the form of betting the ECB got it very
wrong by chasing inflation dragons."
High-yield and commodity currencies were big gainers on the
day, with the U.S. dollar falling 1 percent against its
Canadian counterpart to C$0.9935 <CAD=>.
The Australian dollar <AUD=> rose 0.9 percent to US$0.9042
and was up 2.8 percent this week. The New Zealand dollar
<NZD=>, the highest yielder among G10 currencies, was on track
for a 3.3 percent gain this week, its biggest weekly gain since
(Additional reporting by Kevin Plumberg; Editing by James
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