BLBG: Dollar Gains as Unemployment Rises to 10.2%, Deterring Risk
By Ye Xie
Nov. 6 (Bloomberg) -- The dollar advanced versus the euro after the U.S. unemployment rate rose to 10.2 percent, prompting investors to reduce holdings of higher-yielding assets.
“The initial reaction is risk-negative,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut.
The dollar appreciated 0.1 percent to $1.4852 per euro at 8:44 a.m. in New York, from $1.4871 yesterday. The euro was at 133.92 yen, compared with 134.92. The dollar dropped 0.6 percent to 90.20 yen, from 90.71.
U.S. employers eliminated 190,000 jobs in October after a reduction of 219,000 in the previous month, the Labor Department said in Washington today. The median estimate of 84 economists in a Bloomberg survey was for a reduction of 175,000 jobs.
The dollar was headed for a 0.9 percent weekly decline versus the euro after the Federal Reserve repeated at the end of a two-day policy meeting on Nov. 4 its intent to keep interest rates “exceptionally low” for “an extended period.”
Fed funds futures showed a 57 percent chance that policy makers would raise the target lending rate by at least a quarter-percentage point by the June meeting. A week ago the likelihood was 63 percent.
The central bank held the target rate for overnight lending at a range of zero to 0.25 percent, matching the forecast of all of the 96 economists in a Bloomberg survey.
European Central Bank President Jean-Claude Trichet took a step yesterday toward removing emergency stimulus measures designed to end the recession, saying commercial banks won’t be offered unlimited 12-month loans next year. Policy makers kept the main refinancing rate at a record low 1 percent.
Dollar Index
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro and yen, was little changed at 75.790. The gauge fell 0.2 percent on Oct. 2, when the Labor Department reported that U.S. employers eliminated more jobs in September than economists forecast.
The index fell about 15 percent from a three-year high reached in March, dropping on speculation the Fed will be slow in raising borrowing costs. The index decreased to a 14-month low of 74.94 on Oct. 21.
Group of 20 finance chiefs will likely urge Asian nations to allow their currencies to appreciate when they meet this weekend in Scotland, according to UBS, the world’s second- largest currency trader.
While exchange rates won’t be on the agenda, “many nations will seek to bring it up,” Geoffrey Yu, foreign-exchange strategist in London at UBS, wrote in a research report to clients.
Australia’s dollar rose for a third day against its U.S. counterpart as the Reserve Bank said the nation’s economy will expand at more than three times the pace forecast in August and signaled it will continue to lead the world in raising interest rates. The Aussie gained 0.4 percent to 91.38 U.S. cents.
