Weak data trigger new dollar decline

Weak US jobs figures have triggered another decline in the dollar, with predictions that the euro will soon breach $1.30. Cliff Taylor, Economics Editor, reports.

The US Labor Department announced yesterday a paltry 1,000 increase in non-farm payrolls in December. While it was the fifth consecutive monthly rise, it was a fraction of the 130,000 increase anticipated by market analysts. The figures prompted concern about the strength of the recovery, although President Bush was quoted as saying: "I'm optimistic. All of the signs in our economy are very strong."

The US currency had made some gains in early trading in Europe yesterday, following overnight reports of heavy intervention by the Japanese authorities who are trying to hold down the yen to protect their exporters. However, the dollar fell quickly after the jobs figures and the euro traded as high as $1.2868, more than a cent up on the day and yet another record high. The dollar was up 0.37 per cent at 106.51 yen.

Market analysts foresee no early end to the currency's weakness. The euro is likely to quickly test the $1.30 level, according to Mr John Beggs, chief economist at AIB Bank and could fall further after that.

As well as the poor December figures, the US Labor Department report revised down the November increase to 43,000, compared to an earlier estimate of 57,000 jobs. The unemployment rate fell last month to 5.7 per cent from 5.9 per cent in November, but much of the decline was due to people withdrawing from the labour market.

A breakdown of the figures showed a drop in retailing employment, suggesting weak sales in the run up to Christmas and a continued fall-off in manufacturing jobs. A 17,000 jump in construction, encouraged by a strong property market fuelled by low interest rates, was one of the few plus points of the monthly report.

The weak jobs figures suggest that an increase in US interest rates may still be quite some way off, with opinion divided in the markets about whether the first rate rise will come before November's presidential election. By appearing to delay such an increase, the latest figures led to a jump in US bond prices and a matching decline in bond yields.

The figures also contributed to a fall in European share prices, which were also dragged lower by an announcement from Shell that it was cutting its proven oil reserves by 20 per cent, or 3.9 billion barrels. In the US , share markets lost ground and the Dow Jones index closed down 133.55 points last night at 10,458.89, or 1.26 per cent.

The French finance minister, Mr Francis Mer said yesterday that he hoped that G7 economic ministers, who meet in early February in Florida, could do something to stabilise currency exchange rates.

"I think the G7 will have the opportunity to discuss the issue in a month's time. I hope on this occasion we can clarify and stabilise things," he said in a radio interview, referring to the dollar's slump to record lows against the euro.

So far the only main central bank intervening to try to influence currency levels is the Bank of Japan. Japan's Ministry of Finance did not confirm any intervention yesterday but dealers said there was a continuation of yen selling seen earlier in the week. Japan sold a record 20 trillion yen in 2003, a strategy that slowed the yen's rise against the dollar to around 10 per cent for the year, half the euro's 20 per cent advance.