The euro hit a four-year high yesterday versus the dollar, yen and sterling, after a gloomy survey of the US labour market overshadowed a report showing the US service sector expanded in April.
Increasing concerns about the US economy and returns on dollar-denominated assets have directed cash flows into the euro zone recently, pushing the euro higher. And yesterday the currency reached a new four-year high of $1.1302 before slipping back to $1.1279, a gain of 0.45 percent compared with Friday's New York close.
Currency traders said holidays in London and Tokyo left trading volumes thin, making price action more exaggerated.
A new report by the employment research firm Challenger, Gray & Christmas, which said that planned job cuts at US firms jumped to 146,399 in April, their highest level since November, sent the dollar trading lower.
The Challenger, Gray & Christmas report compounded the April US employment report of last Friday that showed the unemployment rate rose to 6.0 per cent from 5.8 per cent in the prior month. Bad news on the employment front overshadowed better than expected US economic data on the services sector.
The ISM non-manufacturing index, an important gauge of the dominant US service sector, rose to 50.7 in April from 47.9 in March. Economists expected the index to rise to 48.8. A reading of 50 divides expansion from contraction. The service sector - two-thirds of the US economy- expanded from January 2002 until March 2003.
"The ISM (Institute for Supply Management report) was good but Challenger (report) was bad. This continues to be an issue of flows and foreign investors refusing to come back to the U.S. economy. This is related to stocks, bonds and the dollar and a desire for higher yielding investments," said Mr David Leaver, chief dealer at GAIN Capital.
Economists expect the Fed to leave rates at four-decade lows of 1.25 per cent when it meets today, but weak data in recent weeks have increased expectations it might concede there are risks to the economy in its accompanying statement. - (Reuters)
