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The Dollar Gains Some Ground
It'll be a while until the dollar (if ever) makes it back to post Euro formation levels, but today it took a nice step away from it's trend of steady decline. The dollar rose from the record low of $1.3667 to a six week high of $1.3044. Living in a debtor nation, I can take a sigh of relief.
| quote: | Dollar Surges Against Euro in Reversal
Fri Jan 7,11:22 AM ET
By Kevin Plumberg
NEW YORK (Reuters) - The dollar quickly reversed course to rise against the euro on Friday, shrugging off losses sparked by lower-than-expected U.S. jobs growth, as traders continued to unwind bets against the U.S. currency.
By late morning, the euro slipped to a six-week low at $1.3044 , down 0.9 percent compared with prices late Thursday in New York and well off the record high hit last week of $1.3667. Against the yen, the euro fell over 1 percent to a session low of 136.58 yen .
"There's been a meaningful shift in sentiment on the dollar. ... A few months ago it seemed like the dollar could do no right and it traded lower on everything whether the data was positive or negative," said Sophia Drossos, currency strategist at Morgan Stanley.
Drossos said comments from U.S. Treasury Secretary John Snow on the dollar helped to accelerate the currency's gains.
"We want to do things to sustain the strength of the dollar; among them is going to the Congress to work on the deficit, to bring the deficit down," Snow told CNBC TV.
Drossos said "(Snow's) comments along with the more hawkish tone we've heard from the Fed really call into question whether there's unequivocal preference for a weak dollar by U.S. authorities."
Dealers also indicated important chart levels around $1.3140 were broken, which might have driven the euro even lower.
"The market couldn't get the euro any higher on the overall positive employment number when taken with the revisions ... and couldn't get through $1.3250, so people bailed out of their long euro positions," said Robert Houck, a euro trader with Wells Fargo in Minneapolis.
Even though December U.S. non-farm payrolls growth was slightly below expectations, the market still figured the Federal Reserve (news - web sites) is on track to raise interest rates further.
The U.S. economy generated 157,000 jobs in December according to a government report, short of economists' prediction of 175,000. Payrolls growth in November and October was revised higher to 137,000 and 312,000, respectively.
"The headline figure, at the margin, was disappointing and that's why you saw the dollar and yields fall. But the revisions bring December's number up to where expectations were, so that's not that bad," said Bob Lynch, senior currency strategist with BNP Paribas in New York.
Price action was relatively steady after the employment report's release especially since any monthly job creation around 150,000 or higher is viewed by the market as a green light for the Fed to maintain its pace of quarter percentage point rate hikes in the near future.
Higher U.S. rates tend to burnish the appeal of the dollar since they attract foreign investors to invest in U.S. assets.
"The December Fed minutes made clear that so-so payroll growth is enough to support continued tightening," said Chris Low, chief economist at FTN Financial.
Against the yen , the dollar fell 0.3 percent to 104.76 yen.
The dollar was up 1 percent at 1.1870 Swiss francs , and dropped 0.3 percent to C$1.2232 .
The jobs report extinguished any suppositions in the market that the Fed could speed up or increase the size of its hikes.
"One thing (the jobs report) does argue against is any notion of accelerated Fed tightening," said Alan Ruskin, research director with 4Cast Inc in New York.
"The earnings data was again soft and that element should give confidence that we're not going to see any major acceleration on the inflation front and that should be bond-friendly and dollar-negative."
The dollar had started 2005 on a stronger note largely because analysts focused on expectations that the U.S. economy would outperform those of Europe and Japan, leading to more attractive interest rates for the U.S. currency.
This outlook was reinforced by the release this week of minutes from the Fed's latest meeting which showed U.S. central bankers believed rates were too low to forestall inflation.
The Fed is expected to raise interest rates again as soon as the start of February, bringing them up to 2.5 percent. (Additional reporting by Justyna Pawlak in London and Jamie McGeever in New York) |
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