Payroll growth rises 132,000; soft economic news hit yen Last Update: 1:27 PM ET Dec 8, 2006
Get your carry on. BOJ not raising rates. Fed strong dollar means continued pause or rising rate environment. Great for a carry. Euro maybe too overbought to do a Yen\Euro. So Yen\USD is a way to go for the short term at least. Still would like to see what the Fed does next FOMC meeting.
NEW YORK (MarketWatch) -- The dollar rallied sharply Friday, touching more than one-week highs against the euro and yen, after U.S. Treasury Secretary Henry Paulson reiterated a strong dollar policy, but avoided pegging a level on the Chinese yuan. Paulson, in an interview with CNBC, described Friday's nonfarm payrolls report as "very, very good news" for the economy. He also welcomed wage growth that has supplemented job gains. He reiterated that a strong dollar is in the U.S. interest and called for greater "flexibility" of the yuan. Paulson and Federal Reserve Chairman Ben Bernanke are scheduled to visit China next week. Paulson's comments on the yuan "appeared to be in line with rumors overnight of a press for a wider trading band. Yet, his reticence to argue for the 10% appreciation that he was questioned about seems to have sparked a run out of the yen," said analysts at research firm Action Economics. Chart of C_JPY In New York trading, the dollar was quoted at 116.29 yen, compared with 115.25 yen late Thursday. The euro changed hands at $1.3222, up from $1.328. The British pound traded at $1.9568, compared with $1.9622. The dollar changed hands at 1.2024 Swiss francs, compared with 1.1956 francs. The euro fetched 153.78 yen, compared with 153.07 yen. See live foreign-exchange rates. The Dollar Index, which tracks the greenback against the world's major currencies, also rose to its highest level since Nov. 30 at 83.34. It last traded at 83.19, up 0.5%. Traders also sold the yen after Jiji Press said the Bank of Japan will not raise interest rates later this month. Earlier, the dollar briefly moved higher before reversing course after the Labor Department said nonfarm payrolls expanded by 132,000 in November, higher than the 112,000 expected by economists surveyed by MarketWatch. Job growth in October and September were revised higher by a net 42,000 jobs. See full story. Analysts say the nonfarm payrolls report was not strong enough to counter bearish sentiment towards the dollar in the market. "The bearish dollar sentiment we've seen over the last couple of weeks hasn't disappeared with these jobs numbers," said Meg Browne, currency strategist at Brown Brothers Harriman. The number of jobs added in November was "not that much higher than expected," she said. "We're expecting the dollar to continue to trade with a negative bias into the end of the year, with a reversal in early 2007." The U.S. unemployment rate ticked higher to 4.5% in November from 4.4% in the previous month, the Labor Department said. That increase in the unemployment rate was expected. Average hourly earnings increased 3 cents, or 0.2%, to $16.94. Economists had been expecting a 0.3% gain. Consumer sentiment erodes U.S. consumer sentiment eroded in December. The University of Michigan's consumer sentiment index fell to 90.2 in December from 92.1 in November. Economists had expected sentiment to rise to 92.4. See full story. The greenback has been under heavy pressure lately, slumping to multi-month lows versus the euro and yen and 14-year nadir against the British pound, on growing worries that the interest-rate differential between the U.S. and Europe would narrow soon. The dollar has declined about 4% versus the euro and 2% versus the yen since mid-November. The odds of an interest-rate cut in early 2007 declined Friday. Traders were pricing in a 36% chance that the Federal Reserve will lower its target for overnight rates to 5% from 5.25% in March, down from 48% late Thursday. The odds of a rate cut in January fell to 12% from 16%. A week earlier, the odds of a rate cut by the end of March stood at76%. See Market Pulse. The Fed last voted to hold overnight interest rates steady at 5.25% in late October. The Federal Open Market Committee, the Fed's policy-setting panel, is expected to hold rates steady next Tuesday. Lower U.S. interest rats make the dollar less attractive to investors. Soft data weigh on yen Elsewhere, the yen came under pressure following a batch of soft Japanese economic data and amid rising speculation that the Bank of Japan won't raise interest rates later this month. Japan's economy expanded at an annualized real rate of 0.8% in the July-through-September period, revised downward from a preliminary 2% gain. In price-adjusted terms, third-quarter GDP expanded 0.2%, down from a preliminary reading of 0.5% growth. Separately, Japan's Cabinet Office said core machinery orders rose 2.8% in October on a seasonally adjusted basis. Economists had expected core orders to grow by 5.7% on the month. In September, core machinery orders had fallen 7.4%. Ashraf Laidi, chief foreign-exchange analyst at CMC Markets in New York, noted that the downward revisions to GDP growth were mainly due to weakness in capital expenditures and consumer demand. The weaker capital spending "could weigh on any chances of an upside in next week's release of the Tankan survey [of business sentiment], which could slash chances for a December rate hike," he said. Also on Friday, Tang Xu, head of the research department of the People's Bank of China, said China's not currently considering widening the yuan's daily trading band. End of Story Wanfeng Zhou is a markets reporter in New York.
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