Euro maintains firm tone a day after Trichet signals rate hike
By Deborah Levine and William L. Watts
NEW YORK (MarketWatch) — The dollar fell to its lowest level in four months against the euro and gave up gains against the Japanese yen on Friday as oil prices topped $104 a barrel, raising investors worries that high energy prices will hurt growth.
Also weighing on the dollar, the key U.S. jobs report showed that companies hired fewer workers in February than economists expected.
The dollar index(DXY 76.16, +0.50, +0.66%), which measures the U.S. unit against six major currencies, fell to 76.385, from 76.473 late Thursday. The index fell as low as 76.275 in morning trading.
Earlier, the euro(EURUSD 1.4081, -0.0084, -0.5930%) rose to its highest level since November, topping $1.40. It then tipped back to $1.3991, up from $1.3963 in late North American trading on Thursday. See real-time currency quotes and tools.
As a result of the euro’s big gains on Thursday, many analysts said the yen would give a cleaner read on the markets’ reaction to the U.S. payrolls data.
Against the yen(USDYEN 81.3100, +0.3300, +0.4075%), the dollar gave up earlier gains to buy ¥82.31, compared with ¥82.38 late Thursday.
The British pound(GBPUSD 1.6036, -0.0079, -0.4902%) slipped to $1.6266, from $1.6277 late Thursday and after showing strength during European trading.
Reports of rising tensions in Libya and the Middle East also raise worries among investors, who tend to seek out currencies of countries they deem safe. The yen and Swiss franc have lately been the bigger beneficiaries than the dollar when investors seek safety.
The dollar (USDSWF 0.9195, +0.0118, +1.2997%) dropped as much as 1% against the franc.
Treasury yields, which move inversely to prices, turned lower on the day, making U.S. debt less attractive to overseas investors. Read story on Treasury bonds.
“It would be better for the dollar if we saw bond yields push higher,” said Ashraf Laidi, chief market strategist at CMC Markets. “Markets could easily start to worry again about the Middle East and oil prices.”
The U.S. Labor Department said the economy added 192,000 jobs in February, fewer than economists expected. That’s still a big rebound from January’s numbers, which were revised slightly higher Friday. Read story on U.S. payrolls.
Also, the unemployment rate fell to 8.9% from 9%.
“This is disappointing in that it suggests that there has been no acceleration of private-sector job growth from the fourth quarter of 2010,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
Since January payrolls took a hit from bad weather, February’s numbers were due to bounce back. But it will be difficult to discern how much of the rebound is due to the weather, he said.
“U.S. payrolls are of importance today, although we don’t think the data should be overplayed,” said Steven Barrow, currency strategist at Standard Bank.
The data won’t inspire any change in outlook and monetary policy from the Federal Reserve, Barrow said. Officials appear committed to very steady monetary policy, and it would take a big surprise in the payrolls data to significantly alter policy expectations.
On Thursday, the euro jumped after European Central Bank President Jean-Claude Trichet signaled that an interest-rate increase was likely next month. Higher rates are generally positive for a currency, as investors seek higher-yielding assets. Read more on ECB.
“The ECB is sending a strong signal to the market — policy rates are not appropriate any more and the tightening process should start sooner rather than later,” Frederik Ducrozet, euro-zone economist at Credit Agricole, wrote in a note to clients. “That said, Trichet did not hint at a series of quick rate hikes,” which could cap the euro’s gains.
For the week, the euro has gained 1.7%, the most since mid-January. The shared currency has advanced 4.5% gains this year.
The dollar index has lost 1.2% this week, and has lost 3.3% this year.
The dollar has gained 0.8% against the Japanese yen since last Friday, and is up 1.5% in 2011.
The British pound has advanced 0.9% this week, adding to its 4.2% gain this year. It touched $1.6344 this week, its loftiest level since January 2010.
Deborah Levine is a MarketWatch reporter, based in New York. William L. Watts in London and Lisa Twaronite in Tokyo contributed to this report.
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