Dollar Falls Below 82 Yen For First Time Since 1995 After Unemployment Report
Oct 8, 2010 1 Comment ›› Pat Dollard
The dollar dropped below 82 yen for the first time in 15 years as the U.S. payrolls report showed employers cut more jobs last month than economists forecast, heightening concern the economic recovery is stalling.
The greenback was headed for a fourth weekly decline against the euro in the longest stretch of losses since December 2008 as investors speculated the Federal Reserve will debase the currency by stepping up purchases of government debt. The yen and Swiss franc rose today versus major counterparts as investors sought easily traded alternatives to the dollar.
“People are taking the numbers and continuing to price in quantitative easing,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. “You’re going to see the dollar pressured throughout the session.”
The dollar decreased 0.7 percent to 81.83 yen at 11:29 a.m. in New York, from 82.41 yesterday. It touched 81.73, the lowest level since April 1995. The U.S. currency was little changed at $1.3930 per euro, compared with $1.3926. The euro slid 0.7 percent to 114 yen, from 114.75.
The Dollar Index, used by IntercontinentalExchange Inc. to track the greenback against the currencies of six major U.S. trading partners including the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, slid 0.2 percent to 77.24, from 77.39 yesterday, when it touched 76.91, the lowest level since Jan. 15.
The yen appreciated 0.9 percent to 12.26 against the Swedish krona and advanced 0.6 percent to 48.63 versus the Brazilian real. The franc gained 0.5 percent to 96.16 centimes versus the dollar after appreciating yesterday to a record level of 95.56.
U.S. Payrolls
Employers cut staffing by 95,000 workers after a revised 57,000 decrease in August, Labor Department figures in Washington showed today. The median estimate of economists surveyed by Bloomberg News called for a 5,000 drop. The unemployment rate unexpectedly held at 9.6 percent.
“The market inclination that employment is the bar to get over for further QE is being fed by these numbers,” said Stewart Hall, an economist at HSBC Holdings Plc in Toronto. “We are taking more steps toward quantitative easing.”
Fed Chairman Ben S. Bernanke said on Oct. 4 that the central bank’s first round of large-scale asset purchases aided the economy and that further quantitative easing is likely to help more. The Federal Open Market Committee is next due to meet Nov. 2-3.
The central bank completed in March a program in which it created new money to purchase $1.25 trillion of agency mortgage- backed securities and about $175 billion of agency debt, debasing the dollar. The Fed was the biggest buyer of Treasuries when it purchased $300 billion of U.S. debt in 2009.
Bank of Japan
The Bank of Japan adopted this week a 5 trillion yen ($60 billion) program aimed at lowering long-term borrowing costs and the premiums on corporate debt. It also cut its benchmark overnight interest rate for the first time since 2008, dropping it to a range of zero to 0.1 percent.
“It becomes a question of who prints the most, and as you see the yen strengthened today,” said Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co., in a radio interview on “Bloomberg Surveillance” with Tom Keene. “There is the assumption that the U.S. will print more than Japan on a relative basis.”
The dollar was down 1.7 percent versus the yen this week in a third decline, while the greenback’s fourth weekly loss has pushed the euro down 1 percent. The greenback slid for five straight weeks through Dec. 26, 2008, after the Fed cut the target lending rate to a range of zero to 0.25 percent.
Noda on Intervention
Finance Minister Yoshihiko Noda of Japan told reporters today in Tokyo before departing for a Group of Seven meeting in Washington that the nation doesn’t intend to return to the long- term, large scale intervention campaigns of the past.
Japan acknowledged intervening in the currency market on Sept. 15, when the yen strengthened to 82.88 per dollar. Chief Cabinet Secretary Yoo Sengoku said then that the finance ministry “seems to think” 82 is the line of defense to protect the nation’s export-dependent economy.
Canadian Finance Minister Jim Flaherty, who chairs the G-7 gathering, said this week that “there are concerns about interventions in currency markets” and that he’s “sure” the issue will be discussed. Brazil’s Finance Minister Guido Mantega warned last month of a “currency war.”
The Dollar Index rose earlier today as St. Louis Fed President James Bullard said in an interview on CNBC that the chance of a renewed U.S. recession has ebbed and there may not be a strong enough case for additional stimulus.
“The risk of double-dip recession has probably receded some in the last six to eight weeks,” Bullard said. “The economy has slowed, but it hasn’t slowed so much that it’s an obvious case to do something. A very reasonable decision would be to say, ‘Maybe we should push it off a meeting or two and see how the data comes in.’”
