The dollar sank to a fresh record low against the euro on Friday, as a stunningly small gain in U.S. payrolls further fanned expectations that U.S. interest rates will remain at a 45-year trough for some time.
In a yield-seeking environment such as the currency markets, low interest rates tend to diminish the appeal of dollar-denominated assets for global investors.
The U.S. Labor Department said non-farm payrolls added just 1,000 jobs in December, compared with market forecasts of 130,000 new jobs. The unemployment rate, however, fell to 5.7 percent from 5.9 percent in November.
“Bottom Line: It’s back to the drawing board for those who believed the economy was blasting into 2004 at full speed,” said Andrew Busch, global FX strategist at BMO Nesbitt Burns in Chicago. “While the jobs data are out of line with other much stronger U.S. reports, don’t resist the market’s interpretation today. The Fed’s ’on hold’ position looks sustainable given these numbers,” he said.
The news triggered a sharp sell-off in the dollar against most key rivals. The greenback had been broadly higher just ahead of the jobs report.
The dollar fell to 7-year lows against the Swiss franc and was last down 0.5 percent at 1.2206 francs. The pound continued its ascent, up 0.86 percent at $1.8483.
The greenback also fell around 0.6 percent against the Canadian dollar to C$1.2706 after strong Canadian employment numbers for December. New Canadian jobs totaled 53,100 jobs in December, pushing the unemployment rate down to 7.4 percent from 7.5 percent in November.
Europe unfaced by euro surge, looks to G7
Euro zone policymakers, meanwhile, have so far appeared relaxed about the euro’s record-busting rally. European Central Bank President Jean-Claude Trichet said on Thursday that growing global demand should ease the impact of a less competitive exchange rate on European exports.
On Friday, French Finance Minister Francis Mer said he hoped the Group of Seven industrial nations could help stabilize currency markets when they meet next month in Florida.
“As market players look towards the next G7 meeting, the $1.30 level in the euro/dollar appears to be squarely in their sights,” said Michael Woolfolk, senior currency strategist at Bank of New York in Chicago. “Under these circumstances the silence on behalf of U.S. and European policy makers to the pace of the dollar’s decline is not only surprising, but it is downright deafening,” he added.
Earlier Friday, the dollar scored its highest level against the yen in almost a month, at around 108.23 yen, after traders suspected aggressive yen selling by Japan to slow the pace of its currency’s export-choking rise. The dollar was still up 0.39 percent at 106.57 yen.
Japan’s Ministry of Finance did not confirm any intervention, but dealers said there was a continuation of yen selling seen earlier in the week.
According to the Nikkei’s Nihon Keizai Shimbun, Japan has spent 4 trillion yen (about $38 billion) on yen-selling intervention so far in 2004, broadly in line with traders’ estimates.