Dollar Weakens on Jobs Concern
MarketWatch.com, March 31, 2005
NEW YORK (MarketWatch) - The dollar was off its lows Thursday, after a sharp gain in employment in the latest monthly Chicago purchasing management report supported the currency a bit.
But the dollar remained under pressure as weekly jobless claims unexpectedly rose. Currency market players are focused on the March employment report, due Friday.
Traders hope that a strong monthly jobs report will press the Federal Reserve to increase interest rates more aggressively, which in turn would attract dollar-denominated investments.
The euro was quoted at $1.297, up 0.4 percent on the session but below an intraday high of $1.3018. The dollar stood at 107.13 yen, down 0.3 percent, but above its reading of 106.94 before the Chicago report.
The Chicago purchasing managers index showed a reading of 69.2 percent this month. A MarketWatch poll of economists had produced an average forecast of 60.4 percent.
Currency markets zeroed in on the index's employment sub-index, which shot to 66 percent from 57 percent in February, according to Brian Dolan, head of currency research at Gain Capital.
The rise in Chicago manufacturing jobs was a positive indication for the jobs report on Friday but did not outweigh the jobless claims disappointment, Dolan said. He pointed out that the factory sector represents only about 15 percent to 20 percent of the total economy, and the gains were confined to one region.
Weekly jobless claims rose 20,000 to 350,000, compared with expectations of a fall to 320,000.
The unexpected increase in claims "will be written off to an Easter distortion, which we expect to be unwound over the near term," according to Action Economics economist Mike Englund.
"But data for the previous two weeks were also revised higher, which reiterates that initial claims figures have bounced off the lows seen in early February," he said.
The dollar also was pressured by the core personal consumption expenditure price index - the Federal Reserve's favorite measure of consumer inflation. The index rose 0.2 percent in February, compared with a 0.3 percent gain in January.
Dollar proponents were hoping for a more brisk indication of inflation - which also would have helped push the Federal Reserve into a bolder rate hikes program.
Nominal consumer spending rose 0.5 percent in February and personal incomes rose 0.3 percent. The MarketWatch projections were for gains of 0.6 percent in spending and 0.4 percent in income.
Gain Capital's Dolan said there was scant market reaction to news that U.S.-made factory goods rose 0.2 percent in February, contrasting with a MarketWatch economists estimate for a rise of 0.4 percent.
All eyes remain trained on the March employment report. MarketWatch expects a gain of 221,000 jobs, down from an increase of 262,000 in February.
