GOIH Global Economics Report:Dollar tumbles after jobs report

Dollar tumbles after jobs report
By Peter Garnham

Published: September 7 2007 11:02 Last updated: September 7 2007 13:48
The dollar fell to a one-month low against the euro on Friday after data showed the US economy shed jobs for the first time since August 2003.
US non-farm payrolls data showed 4,000 jobs were lost in August, well below expectations for an increase of 112,000.

Analysts said the number increased expectations that the Federal Reserve would move to cut its main lending rate.

“This is unequivocally bad news for the dollar, raising the probability that the Fed will cut interest rates on or before its next meeting on September 18 to almost one hundred per cent,” said Michael Woolfolk at Bank of New York Mellon.

“This is the first piece of solid data that shows the problems in the US mortgage markets are hitting the real economy.”

The dollar dropped 0.5 per cent to $1.3750 against the euro, fell 0.8 per cent to Y114.44 against the yen and eased 0.3 per cent to $2.0280 against sterling and eased 0.2 per cent against the yen.

Meanwhile, the yen advanced as weakness on global stock markets saw investors shun riskier, high-yielding currencies in favour of the low-yielding Japanese currency.
The yen rose 0.2 per cent to per cent to Y157.60 against the euro, gained 0.4 per cent against sterling to Y232.50 and climbed 0.7 per cent to Y79.35 against the higher-yielding New Zealand dollar.

Elsewhere, the pound dropped 0.2 per cent to £0.6780 against the euro.
Tom Vosa at National Australia said there were downside risks to sterling.
He said although ongoing liquidity problems in the UK banking sector were keeping three-month interest rates above the Bank of England’s standing facility lending rate for now, there had been more success in encouraging the overnight rate back towards the Bank rate.
“Sterling could suffer from a lack of interest rate support amid reports that rate increases are beginning to weigh on UK consumers,” said Mr Vosa.