Thursday 2 July 2009

CURRENCIES: U.S. Dollar Up After June Jobs Data Disappoint

CURRENCIES: U.S. Dollar Up After June Jobs Data Disappoint

By Deborah Levine

The dollar gained more than 1% versus the euro and Canadian and New Zealand currencies Thursday after the U.S. government reported more job losses than expected in June, raising concerns about the vitality of the economic recovery.

Also weighing on the euro, the European Central Bank said it would hold interest rates at current record-low levels and made no significant changes to its plan to purchase covered bonds.

The dollar index (DXY), a measure of the greenback against a trade-weighted basket of currencies, stood at 80.232, up from 79.619 in North American trading Wednesday afternoon.

The euro bought $1.4013, down from $1.4156 Wednesday. The greenback gained as much as 1% against the Canadian dollar and 1.8% versus the New Zealand dollar, reversing some of the steep declines in recent months.

The U.S. Labor Department said nonfarm payrolls contracted by 467,000 last month, more than the 325,000 drop expected by economists surveyed by MarketWatch. The nation's unemployment rate rose to 9.5%, less than the anticipated 9.6%.

U.S. equity markets dropped after the data, as investors registered their displeasure with the step backward taken by the employment market. The Standard & Poor's 500 Index (SPX) lately lost about 2.2%.

Falling stocks have for months tended to be a stronger factor in currency trading.

"It started under the guise of safe-haven flows, when stocks fall, the market would pile into the dollar," said Ronald Simpson, a global currency analyst at Action Economics. "The relationship is more related to the Treasury market -- you buy dollars and pour into short-term Treasurys, which are considered safe."

The Japanese yen has been an even stronger beneficiary of flights to safety. The dollar traded at 95.93 yen, from 96.59 yen on Wednesday.

Also weighing on the euro, the ECB left unchanged its key lending rate, as expected, and stuck with the amount of covered bond purchases in its plan.

At his monthly news conference, ECB President Jean-Claude Trichet said the rates remain "appropriate" in light of recent economic data.

Also, "we saw the euro slip a little bit on Moody's downgrade of Ireland," said Simpson.

In the overnight session, currency traders played off a Chinese official's call for a stable dollar and a diversification of reserve currencies Thursday, reports said, but the currency market reaction was muted.

China hopes for diversification of the international currency system in the future, and this topic could be addressed at next week's Group of Eight leaders' summit next week in Italy, Chinese Vice Foreign Minister He Yafei said, reiterating previous official remarks.

"The market's fear that capital flows are going to shift away from U.S. securities" will weigh on the dollar over time, said Todd Elmer, currency strategist at Citigroup. "There is no real indication it's happening quickly."

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(END) Dow Jones Newswires

July 02, 2009 12:48 ET (16:48 GMT)

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