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Dollar Rises Most in Six Weeks Versus Euro After Jobs Report
May 6 (Bloomberg) -- The dollar climbed the most in six weeks against the euro and rose versus the yen after U.S. job growth accelerated in April, boosting expectations for further Federal Reserve interest rate increases this year.
U.S. employers added a greater-than-expected 274,000 workers, the Labor Department said. The dollar is 5.5 percent higher against the euro and 2 percent higher versus the yen this year as the U.S. economy grows faster than Europe's and Japan's. Higher rates make dollar-based financial assets more attractive.
``This is a dollar-buy number,'' said Lara Rhame, a currency strategist at Credit Suisse First Boston in New York. Job growth ``is another proof the underlying economic fundamentals of the U.S. remain very solid. The Fed is going to keep raising interest rates.''
Against the euro, the dollar climbed 1 percent to $1.2824 at 4:04 p.m. in New York, from $1.2947 late yesterday, according to electronic currency-trading system EBS. The gain is the biggest since March 21. The dollar also rose to 104.99 yen, from 104.48 yesterday. Rhame, who previously worked at the Fed's New York branch, said the dollar may rise to $1.27 per euro next week.
The dollar was higher against 13 of 16 major currencies today including the South African rand, Swiss franc and British pound. Interest-rate futures yield climbed, reflecting expectations for higher rates by year-end.
The U.S. jobless rate was 5.2 percent in April, while Germany's is 11.8 percent, the highest since World War II. Today's figures may confirm U.S. economic growth is accelerating again after a report last week showed it slowed in the first quarter.
`Relieves Some Concern'
``Everyone was looking at the weak economic numbers and this certainly relieves some of the concern about a prolonged soft patch'' in the economy, said Grant Wilson, a currency trader in Pittsburgh at Mellon Financial Corp., which manages about $700 billion in assets. ``The dollar is powering ahead, particularly versus the euro.'' He said the dollar may rally to $1.2820 per euro today.
During April the dollar declined against the euro and the yield on the U.S. 10-year Treasury note fell half percentage point as several indicators including retail sales, consumer confidence and first quarter gross domestic product were short of forecasts. The yield on the 10-year note surged and U.S. stocks rose following the employment report.
The dollar may rise to its strongest this year at about $1.2732 per euro in the next week or two, according to Andrew Chaveriat, a technical analyst at BNP Paribas in New York. The currency rose past its 200-day moving average of $1.2848 per euro, a technical indicator. Chaveriat and other technical analysts use trading patterns to predict price moves.
Rate, Yield Differences
Fed policy makers lifted their target rate by a quarter percentage point to 3 percent on May 3, the eighth consecutive increase since June. A day later, the European Central Bank kept its benchmark rate at 2 percent, the level it has been at since June 2003.
December Eurodollar futures contracts surged almost 20 basis points in yield to 4.01 percent. The futures settle at a three- month lending rate that has averaged 21 basis points above the Fed's target over the past 10 years. A basis point is 0.01 percentage point.
The yield advantage of two-year U.S. Treasury notes over equivalent German government notes is near the widest since 2000. The gap was 148 basis points, up from 132 yesterday. The yield premium has averaged 45 basis points in the past year.
``Sooner or later, the yield differential between Europe and the U.S. has to start to kick in, and it's more favorable to the dollar,'' said David Durrant, a currency strategist in New York at Julius Baer Investment Management, with $22 billion in assets. ``The question is whether it will be able to attract funds to the U.S. given the concerns in the market by a soft patch in the economy.''
Comparative Growth
Fed policy makers said on May 3 that U.S. spending growth is slowing, spurring speculation they may ease the pace of rate increases. ``The solid pace of spending growth has slowed somewhat, partly in response to earlier increases in energy prices,'' the central bank said in a statement accompanying its decision to raise rates.
U.S. gross domestic product will probably expand 3.8 percent this year, according to the median forecast of analysts surveyed by Bloomberg early last month. The ECB last month lowered its 2005 growth estimate to 1.6 percent for the 12-nation euro region.
Japan's currency traded near a seven-week high against the dollar earlier today as speculation mounted that China has moved a step closer to letting its currency fluctuate, which may reduce the competitiveness of China's exports compared with Japan.
China `Working Hard'
China is ``working very hard'' to change its exchange-rate system, though hasn't yet decided on a particular course of action or a timeframe for any move, Deputy Finance Minister Li Yong said today at a press briefing in Istanbul.
``If you look at the comments from the Chinese policy makers over the last two weeks, it looks like there's a different tone on the topic,'' said Jim O'Neill, head of global economics research at Goldman Sachs Group Inc. in London. ``They're now recognizing they don't have much of a choice.''
A currency shift by China would send the yen past 100 per dollar, the strongest since 1995, when China pegged its currency at around 8.3 per dollar, O'Neill predicted.
In other trading, the pound fell the most in two months against the euro today, in part after election results showed Prime Minister Tony Blair will have a reduced majority in parliament in the Labour party's third straight term in power.
May 6 (Bloomberg) -- The dollar climbed the most in six weeks against the euro and rose versus the yen after U.S. job growth accelerated in April, boosting expectations for further Federal Reserve interest rate increases this year.
U.S. employers added a greater-than-expected 274,000 workers, the Labor Department said. The dollar is 5.5 percent higher against the euro and 2 percent higher versus the yen this year as the U.S. economy grows faster than Europe's and Japan's. Higher rates make dollar-based financial assets more attractive.
``This is a dollar-buy number,'' said Lara Rhame, a currency strategist at Credit Suisse First Boston in New York. Job growth ``is another proof the underlying economic fundamentals of the U.S. remain very solid. The Fed is going to keep raising interest rates.''
Against the euro, the dollar climbed 1 percent to $1.2824 at 4:04 p.m. in New York, from $1.2947 late yesterday, according to electronic currency-trading system EBS. The gain is the biggest since March 21. The dollar also rose to 104.99 yen, from 104.48 yesterday. Rhame, who previously worked at the Fed's New York branch, said the dollar may rise to $1.27 per euro next week.
The dollar was higher against 13 of 16 major currencies today including the South African rand, Swiss franc and British pound. Interest-rate futures yield climbed, reflecting expectations for higher rates by year-end.
The U.S. jobless rate was 5.2 percent in April, while Germany's is 11.8 percent, the highest since World War II. Today's figures may confirm U.S. economic growth is accelerating again after a report last week showed it slowed in the first quarter.
`Relieves Some Concern'
``Everyone was looking at the weak economic numbers and this certainly relieves some of the concern about a prolonged soft patch'' in the economy, said Grant Wilson, a currency trader in Pittsburgh at Mellon Financial Corp., which manages about $700 billion in assets. ``The dollar is powering ahead, particularly versus the euro.'' He said the dollar may rally to $1.2820 per euro today.
During April the dollar declined against the euro and the yield on the U.S. 10-year Treasury note fell half percentage point as several indicators including retail sales, consumer confidence and first quarter gross domestic product were short of forecasts. The yield on the 10-year note surged and U.S. stocks rose following the employment report.
The dollar may rise to its strongest this year at about $1.2732 per euro in the next week or two, according to Andrew Chaveriat, a technical analyst at BNP Paribas in New York. The currency rose past its 200-day moving average of $1.2848 per euro, a technical indicator. Chaveriat and other technical analysts use trading patterns to predict price moves.
Rate, Yield Differences
Fed policy makers lifted their target rate by a quarter percentage point to 3 percent on May 3, the eighth consecutive increase since June. A day later, the European Central Bank kept its benchmark rate at 2 percent, the level it has been at since June 2003.
December Eurodollar futures contracts surged almost 20 basis points in yield to 4.01 percent. The futures settle at a three- month lending rate that has averaged 21 basis points above the Fed's target over the past 10 years. A basis point is 0.01 percentage point.
The yield advantage of two-year U.S. Treasury notes over equivalent German government notes is near the widest since 2000. The gap was 148 basis points, up from 132 yesterday. The yield premium has averaged 45 basis points in the past year.
``Sooner or later, the yield differential between Europe and the U.S. has to start to kick in, and it's more favorable to the dollar,'' said David Durrant, a currency strategist in New York at Julius Baer Investment Management, with $22 billion in assets. ``The question is whether it will be able to attract funds to the U.S. given the concerns in the market by a soft patch in the economy.''
Comparative Growth
Fed policy makers said on May 3 that U.S. spending growth is slowing, spurring speculation they may ease the pace of rate increases. ``The solid pace of spending growth has slowed somewhat, partly in response to earlier increases in energy prices,'' the central bank said in a statement accompanying its decision to raise rates.
U.S. gross domestic product will probably expand 3.8 percent this year, according to the median forecast of analysts surveyed by Bloomberg early last month. The ECB last month lowered its 2005 growth estimate to 1.6 percent for the 12-nation euro region.
Japan's currency traded near a seven-week high against the dollar earlier today as speculation mounted that China has moved a step closer to letting its currency fluctuate, which may reduce the competitiveness of China's exports compared with Japan.
China `Working Hard'
China is ``working very hard'' to change its exchange-rate system, though hasn't yet decided on a particular course of action or a timeframe for any move, Deputy Finance Minister Li Yong said today at a press briefing in Istanbul.
``If you look at the comments from the Chinese policy makers over the last two weeks, it looks like there's a different tone on the topic,'' said Jim O'Neill, head of global economics research at Goldman Sachs Group Inc. in London. ``They're now recognizing they don't have much of a choice.''
A currency shift by China would send the yen past 100 per dollar, the strongest since 1995, when China pegged its currency at around 8.3 per dollar, O'Neill predicted.
In other trading, the pound fell the most in two months against the euro today, in part after election results showed Prime Minister Tony Blair will have a reduced majority in parliament in the Labour party's third straight term in power.
