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Economy adds fewer jobs than expected Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000006&sid=a0dAKutIMPjs&refer=homehttp://quote.bloomberg.com/apps/news?pid=10000006&sid=a0dAKutIMPjs&refer=home
Dollar Drops After U.S. Economy Adds Fewer Jobs Than Predicted
Dec. 3 (Bloomberg) -- The dollar fell against the euro, approaching a record low, after hiring by U.S. employers slowed in November. The figures damped confidence in the economy and expectations for Federal Reserve interest-rate increases.
The U.S. currency dropped three-quarters of a cent within a minute after the Labor Department said the economy added 112,000 non-farm jobs last month, less than half October's rate. The median estimate was for 200,000 jobs, based on a survey of 75 economists by Bloomberg News.
``That number that came through was very disappointing,'' said Paul Mackel, senior currency strategist in London at ABN Amro Holding NV, the biggest Dutch bank. ``With this out of the way now dollar bears are much more confident with their position and will be starting to sell the dollar yet again.''
Against the euro, the dollar weakened to $1.3358 at 10:24 a.m. in New York from $1.3269 late yesterday, when it reached an all-time low of $1.3385, according to EBS, an electronic currency- trading system. The U.S. currency fell to 102.52 yen from 103.25, after this week reaching the lowest since January 2000. It is down 0.5 percent this week against the euro.
ABN Amro predicted the dollar will trade at $1.33 per euro and 102 yen per dollar in a month.
Signs labor-market growth slowed from October's 303,000 gain magnify pessimism about the U.S. currency, which declined 8 percent in the past six months against the euro on concern bulging U.S. trade and budget deficits have left the nation vulnerable to a pullback in foreign investment.
Another `Excuse'
``This is about as bad as it gets,'' said T.J. Marta, a currency strategist in New York at RBC Capital Markets. ``This is just one more excuse to sell the dollar,'' which may fall to $1.35 per euro by the end of March, he said.
The U.S. currency will extend its decline this month, said John Henry, principal owner of the Boston Red Sox and a commodity trader. ``The last two months, three months, have been very good for us,'' Henry said in an interview. ``There will be less liquidity, so I think there will be extra risk'' of weakness through year-end.
Yields on Eurodollar futures settling next year fell, reflecting lower expectations for rate increases in 2005. The yield on the March contract dropped 7.5 basis points to 2.81 percent. The contracts settle at a three-month lending rate that has averaged about 22 basis points above the fed's rate target the last 10 years.
Rate Predictions
All 22 primary U.S. government securities dealers, firms that trade with the Fed's New York branch, predict the Fed will raise its benchmark overnight bank-lending rate a quarter- percentage point on Dec. 14, to 2.25 percent. The European Central Bank left its benchmark rate at 2 percent yesterday.
In a Bloomberg News survey of primary dealers last month, predictions for the Fed rate at the end of next year were as high as 4.25 percent. A rate increase next week would be the Fed's fifth this year.
``This does raise doubts as to whether we will see interest- rate hikes at every meeting from the Fed, so it does undermine the dollar,'' said David Mann, a currency strategist at Standard Chartered Plc in London.
Reduced expectations for rate increases can lower the appeal of U.S. yields relative to European yields. At 4.29 percent, the 10-year U.S. Treasury note yield was about 0.52 percentage point above that on German government debt of the same maturity. That difference reached the highest in four years this week.
Current Account
The dollar pared its losses after an industry group said services industries accelerated last month. The Institute for Supply Management's non-manufacturing index rose to 61.3 in November from 59.8 in October.
The U.S. currency has lost about 7 percent against the yen in the past six months as some investors bet the Bush administration would tolerate a weaker currency to help trim the current-account deficit.
The shortfall in the U.S. current account, a measure of trade, services, tourism and some investments, rose to a record $166.2 billion in the second quarter, equivalent to 5.7 percent of the economy, up from 5.1 percent in the first quarter.
The deficit means the U.S. needs to attract $1.8 billion in foreign investment per day to keep the dollar from weakening. The U.S. federal budget deficit also reached a record in the year through September.
That current-account deficit ``will neither widen nor narrow significantly in 2005,'' Philadelphia Federal Reserve president Anthony Santomero said at a conference. Although the U.S. economy is likely to remain stronger than its trading partners, a weaker dollar and growth in foreign economies will create more demand for U.S. goods and services, he said.
The dollar is little changed on the week against the yen, following nine straight weekly losses, after Japanese officials suggested they may stem the dollar's decline.
Finance Minister Sadakazu Tanigaki said today Japan will act ``if necessary.''
Last Updated: December 3, 2004 10:31 EST
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