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Adds fewer jobs than expected Original Source Link: (May no longer be active)
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Dollar Declines as U.S. Economy Adds Fewer Jobs Than Predicted
Feb. 6 (Bloomberg) -- The dollar fell to a two-week low against the euro in New York as the U.S. economy added a smaller- than-forecast 112,000 jobs last month, suggesting U.S. interest rates won't rise as fast as some investors predicted.
Slow growth in the labor market may keep the Federal Reserve from raising its target interest rate from a 45-year low of 1 percent. The benchmark rate is half the European Central bank's 2 percent key financing rate, giving investors less incentive to hold dollar-denominated debt.
``What the dollar needs is a shift in Fed policy toward higher interest rates,'' said Parker King, a senior currency analyst at Putnam Investments in Boston, which manages $245 billion. ``Today's jobs report is just another reason why that shift isn't going to happen'' soon, he said.
Against the euro, the dollar weakened to $1.2699 at 10:15 a.m. in New York from $1.2549 late yesterday. It dropped to 105.61 yen, compared with 105.83 yesterday, after rising to 106.79 earlier. On the week, the dollar is down 1.8 percent against the euro -- its 11th weekly decline in 13. It fell against the yen for a sixth week in seven, dropping 0.1 percent.
U.S. companies added 112,000 workers to their payrolls last month and the jobless rate fell to 5.6 percent, the Labor Department said in Washington. The median forecast of economists polled by Bloomberg News was for an increase of 175,000 non-farm jobs, after a revised 16,000 increase in December. The unemployment rate was a two-year low.
Declines in the dollar accelerated this week on speculation finance ministers at a meeting of the Group of Seven finance ministers today and tomorrow in Boca Raton, Florida, will fail to agree on a plan that would curb the currency's two-year drop.
European Pressure
Treasury Secretary John Snow suggested he would resist European calls to counter the dollar's slide when he meets with other G-7 representatives, saying that the value of currencies is ``best set in open, competitive markets.'' Many investors interpreted the comments to mean the U.S. endorses a weaker dollar as a way to foster global growth.
European exporters have said the euro's rise will hobble growth in the region's $8 trillion economy, which sends 20 percent of its exports to U.S. markets. Jean-Claude Trichet, the ECB president, yesterday said that he is ``concerned about excessive exchange-rate moves.''
France, Germany and Italy will ask the U.S. to acknowledge that any further declines in the dollar be discouraged, pressing Snow to condemn ``excessive volatility'' in the currency market, said three European G-7 officials who declined to be identified.
Employment Report
``The Bush administration is pretty comfortable with an orderly decline in the dollar,'' said Robert Sinche, head of global currency strategy at Citigroup Inc., in a radio interview with Bloomberg News. The G-7 ministers ``won't say the dollar has fallen far enough.''
The dollar's declines were exacerbated today by expectations the employment number would be better than forecast, said Tim Mazanec, a senior currency strategist at Investors Bank & Trust in Boston, which holds about $1 trillion as a custodian for investors. That speculation was fueled by Fed Governor Ben S. Bernanke, who yesterday said large-scale hiring in the U.S. would occur ``not too far from now.''
In the past year, the dollar has fallen 15 percent against the euro as low interest rates in the U.S. persuaded investors to look elsewhere. The benchmark two-year Treasury note yields less than bonds of similar maturities issued by 14 major economies tracked by Bloomberg, including France and Germany. Only notes issued by Japan yield less.
Dubai Meeting
The dollar has declined 10 percent against the euro and 7.5 percent compared with the yen since the G-7 urged ``more flexibility'' in exchange rates after its meeting in Dubai in September. Traders interpreted the language as support for a weaker U.S. currency.
``I'd be deeply surprised if `more flexibility' is removed,'' said Robert Rennie, currency strategist in Sydney at Westpac Banking Corp. ``A status-quo statement will mean Europe's concerns over a stronger euro will have been ridden over by the U.S., and the market will take the dollar lower.''
The G-7, which comprises the U.S., Japan, Germany, France, Italy, the U.K. and Canada, will release a joint statement at a press conference Saturday afternoon Boca Raton time.
The falling dollar isn't a problem for the U.S. and the Fed shouldn't try to stem the decline by increasing interest rates, said Paul McCulley, who helps manage about $100 billion at Pacific Investment Management Co.
The other six members of the Group of Seven should fight gains in their currencies by cutting interest rates, McCulley wrote in a commentary on the Web site of the Newport Beach, California-based company. Pimco is a unit of Allianz AG and manages the world's largest bond fund.
Cutting Rates
``The dollar is America's currency, but a falling dollar is not America's problem,'' McCulley wrote.
Earlier, the yen had its biggest drop in two months against the dollar after Japanese Finance Minister Sadakazu Tanigaki pledged to keep selling yen to protect exports from the currency's yearlong rally.
Tanigaki said he will tell his Group of Seven counterparts Japan is ``ready to take action'' to protect its recovery from three recessions in little more than a decade. He spoke to reporters as he prepared to leave Tokyo by chartered jet for the G- 7 meeting.
``Foreign-exchange rates should move in a stable manner by reflecting economic fundamentals,'' Tanigaki said after attending a cabinet meeting. ``I will say these things'' to the G-7 and in private talks with Treasury Secretary Snow on Saturday.
Selling Yen
Matsushita Electric Industrial Co., the world's largest consumer-electronics maker, had a third straight quarterly profit after two years of losses. The yen's advance may slow growth this year, said Tetsuya Kawakami, a managing director at the company.
``Currency is the biggest problem,'' Kawakami said today. ``A rate of 105 yen to the dollar is probably the limit.''
Tanigaki's comments came as the Ministry of Finance said last year's sales of yen totaled 20.4 trillion yen ($192.2 billion), five times those of 2002. The Bank of Japan spent a monthly record of 7.15 trillion yen in the four weeks to Jan. 26.
``Japan's position is clear,'' said Jake Moore, currency strategist in Tokyo at Barclays Capital Inc. ``They are trying to slow the pace of the dollar's decline and will sell yen whenever they feel like it.''
To contact the reporter on this story:
Heather Bandur hbandur@bloomberg.net.
To contact the editor of this story:
Robert Burgess at bburgess@bloomberg.net.
Last Updated: February 6, 2004 10:21 EST
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