The Wall Street Journal-20080202-Dollar Rebounds Against Euro

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Dollar Rebounds Against Euro

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The dollar rebounded against the euro Friday after a shaky start due to a very weak U.S. jobs report.

A combination of rising stock markets, a supportive U.S. manufacturing report and technical barriers saved the dollar from another historic euro rise to its record $1.4968.

"[We] believe the dollar has been quite resilient considering the extent of bad U.S. news, and our bias remains for dollar gains over the medium term," said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York.

Ultimately, many currency analysts have come to believe that the euro's run against the dollar has run out of steam, and that the euro zone will soon see its own economic weakness come to light.

Analysts also noted U.S. employment data are often volatile and revised.

Late Friday in New York, the euro was at $1.4799 from $1.4866 late Thursday, while the dollar was at 106.59 yen from 106.32 yen. The U.K. pound was at $1.9663 from $1.9886, while the dollar was at 1.0890 Swiss francs from 1.0806 francs late Thursday.

Nonfarm payrolls fell 17,000 in January, versus an expected 75,000 increase, in the first drop since August 2003, according to the Labor Department. The unemployment rate fell, as expected, to 4.9% from 5%.

The data support expectations for further policy easing by the Federal Reserve, which cut its benchmark lending rate by half a percentage point Wednesday, after an intermeeting cut a week earlier.

December payrolls were revised up by 64,000 to show an 82,000 increase. However, November job growth was revised down by almost half, to 60,000.

The report pushed the Swiss franc up to a new record high. The dollar fell to a lifetime low of 1.0729 fancs.

The euro's immediate rise against the dollar in response to the jobs data, hitting the closest mark to its record high since Nov. 23 at $1.4956, soon fell back. And the greenback gained momentum after the release of a U.S. manufacturing report that mounted an unexpected recovery in January.

The Institute for Supply Management reported Friday its index of manufacturing activity moved to a reading of 50.7, from 48.4 in December and 50.0 in November. Economists expected a 47.0 reading.

The index fueled a return of risk appetite in currency markets, leading investors to sell the low-yielding yen in favor of currencies that pay higher returns, such as the euro and the dollar.

"In addition to today's U.S. employment data, the market is also focused on developments among the bond insurers," said analysts at Brown Brothers Harriman in New York.

Friday, Moody's Investors Service said the deterioration of subprime home mortgages will likely result in credit-rating downgrades on some bond insurers as they fall short of new, higher capital requirements.

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Dan Molinski contributed to this article.