Dollar languishes on US Recession Jitters

A Singapore foreign exchange board. The dollar sank towards fresh lows against the euro and the yen in Asian trade after a bleak US jobs report added to concerns that the world's largest economy is in a recession, dealers have said.(AFP/File/Roslan Rahman)

10 March 2008

LONDON (AFP) - The dollar slid Monday close to record lows against the euro and fell heavily versus the yen as the US currency suffered from recession fears in the United States, dealers said.

In early morning trade, the euro rose to 1.5377 dollars from 1.5359 dollars in New York late on Friday, when it had struck an all-time high point of 1.5464.

Against the Japanese currency, the dollar sank to 101.95 yen from 102.67 on Friday.

With scant economic data on the radar Monday, the foreign exchange market mulled the recent flood of negative US news.

Jitters about the health of the American economy grew on Friday after official data showed a loss of 63,000 jobs in February, the steepest drop since March 2003, defying market forecasts for a gain of about 25,000 jobs.

Calyon analyst Mitul Kotecha said the numbers pointed towards a darkening economic outlook in the world's biggest economy.

"It doesn't take a genius to guess which way the US economy is heading and the February jobs report on Friday added another nail in the coffin for the economic outlook," Kotecha said.

He added: "Profit-taking helped the dollar to recover slightly ... but this is likely to prove to be a short-term respite for the currency as it moves to the 1.55-1.56 level against the euro."

There is also growing speculation that the Fed will slash its key rate by 75 basis points at its March 18 meeting to 2.25 percent, dealers said.

The central bank's federal funds short-term interest rate is presently pegged at 3.00 percent and some analysts are even expecting an emergency cut before the scheduled meeting.

"The US economy is in a terrible state and there is a chance the Fed will cut rates before the meeting next week," said Mark Wan, chief analyst at Hang Seng Investment Services Ltd.

"There is no reason why anyone should buy dollars," he added.

By contrast, the European Central Bank kept its rates on hold last week and said it was concerned by high inflation, meaning monetary policy in the eurozone is on a difference course to policy in the US.

The greenback fell to an eight-year low of 101.40 yen in New York on Friday in the wake of the gloomy employment report, dealers said.

But the dollar then rebounded the same day after the US Federal Reserve announced that it was pumping up to 200 billion dollars of short-term funding into the distressed financial system to try to ease tightening credit.

In Europe on Monday, the euro changed hands at 1.5377 dollars against 1.5359 late on Friday, at 156.76 yen (157.71), 0.7617 pounds (0.7619) and 1.5719 Swiss francs (1.5744).

The dollar stood at 101.95 yen (102.67) and 1.0220 Swiss francs (1.0247).

The pound was at 2.0193 dollars (2.0153).

On the London Bullion Market, the price of gold rose to 974.47 dollars an ounce from 972.50 dollars late on Friday. Last Thursday, the precious metal hit a record 992.05 dollars.