Expectations rise of Fed rate cut as dollar climbs
The dollar rallied yesterday, recovering from a slide after last week's poor US jobs data and helping European equities edge up, while government bond prices fell.
The recovery in the dollar ahead of a speech on Thursday by Federal Reserve Chairman Ben Bernanke put pressure on gold and oil, which tend to benefit from weakness in the US currency.
Friday's monthly US employment report revealed a rise of just 18,000 in the number of workers on non-farm payrolls in December, worse than the most bearish forecast in a Reuters poll where the consensus had been 70,000 and the slowest pace of growth since August 2003.
The data fueled expectations of a 50 basis point Fed rate cut at the end of the month rather than a cut of just 25 basis points, and sparked a sharp sell-off in the dollar and global equities on Friday.
"The market is possibly hoping that it could get some relief from Bernanke and the Fed," said Jeremy Stretch, strategist at Rabobank.
"Also the market may have got a little bit carried away on Friday post-payrolls, which clearly weren't positive, but they weren't quite as negative as perhaps the market reacted.
"A combination of all that at least at the moment is providing a bit of dollar support."
The dollar fell by more than 8 percent against a basket of major currencies in 2007 as the combination of a global liquidity crisis, the slowing housing market, record high oil prices and patchy data cast doubt on the economic outlook.
By 1010 GMT, the dollar index was up half a percent on the day at 76.261 after falling as low as 75.429 on Friday.
The euro was down 0.5 percent at $1.4672.
European equities managed to shrug off widespread weakness on global stock markets, after shares fell in Asia.
The FTSEurofirst 300 index of top European shares was up 0.4 percent at 1463.30 points, having pared an earlier 0.4-percent loss.
The index fell by almost 2 percent on Friday after the US jobs report, making this its worst daily fall in about a month.
"We've had a huge barrage of very bearish statistics last week from the US and it's obviously weighing on the market," said Edmund Shing, strategist at BNP Paribas in Paris.
"The question this week is: 'are we ready for a short-term bounce, or are we going to crack through the support levels and go further down?' My view is that we'll get a small bounce because we're getting oversold on a number of indices," he said.
Shares in miners and automakers - among those worst hit on Friday by concerns over the outlook for US growth - extended losses yesterday.
Agencies
(China Daily 01/08/2008 page17)
