MercoPress. South Atlantic News Agency

Dollar jumps vs euro, modest gains on yen

The dollar was sharply higher versus the euro yesterday; climbing after the US reported an unexpectedly large increase in April job creation.

The dollar also made strong gains versus the Swiss franc and sterling, but its gains against Asian currencies proved far more modest.

The dollar's advance came after the Labor Department reported that US nonfarm payrolls grew by 274,000 last month ? nearly 100,000 more than financial markets expected.

The government said employers created 93,000 more nonfarm jobs in March and February than originally reported, raising the monthly average for the year so far to a healthy 211,000. The unemployment rate, which is derived from a survey of households rather than employers, held steady at 5.2 percent in April.

The data went a good way toward challenging the notion that a soft patch in growth at the end of the first quarter would continue or accentuate. These concerns had put the dollar under pressure, but the April payrolls data suggested the economy is still growing strong.

In late trading yesterday, the euro was at $1.2822 from $1.2952 late Thursday, a gain of more than one percent. The dollar was at Y104.92 from Y104.45, and at CHF1.2063 from CHF1.1934. The euro slipped to a 12-week low versus the yen and was at Y134.58 in late new York trading from Y135.29.

The dollar also gained on the pound, which was at $1.8902 late yesterday from $1.9049. The pound came under extra pressure overnight after the Labour party won a much slimmed-down majority in the UK general election.

The result meant Prime Minister Tony Blair will serve a third term, an unprecedented for a Labour party prime minister. However, the reduced majority means it may prove tougher for the government to push through their chosen policies and reform. Blair in recent years has overseen a strong UK economy and the pound has benefited from that.

Late yesterday, Blair reshuffled his Cabinet but kept his heavyweight finance minister, Chancellor Gordon Brown, in his post.

In the US meanwhile, the payrolls data, while strong, may not be enough to spark speculation that Federal Reserve policymakers will accelerate their pace of monetary policy tightening, said Robert Sinche, chief foreign exchange strategist at Bank of America.

??In our view, (the jobs figure) keeps the Fed in play but is probably not a sufficient outcome to dramatically alter market expectations about future policy, which we think depends more on future consumer activity than past employment data,'' he added.

Analysts said the dollar made stronger post-payrolls gains versus European than Asian currencies because of the continued concerns about economic and political developments in the euro zone.

These include worries over the May 29 vote in France over the European Union Constitution, as well as renewed signs of stagnation in the euro-zone economy. The yen and other Asian currencies, meanwhile, have been supported by ongoing speculation over a revaluation of the Chinese yuan.

??The scepticism about the euro is as great as it has been for quite some time,'' said John McCarthy, director of foreign exchange at ING Barings Capital Markets. ??It's not that the dollar is strong, it's that the euro is weak.''

Elsewhere, the Australian dollar lost ground after the Reserve Bank of Australia sounded a less hawkish tone on the economy, leaving the likelihood of a further rise in interest rates on the table, but conceding that inflationary pressures appear to be receding.

The Australian dollar fell to US$0.7752 from US$0.7812 late Thursday late in New York trading.

Meanwhile, markets are still focused on question of when China will revalue its currency, the yuan. Overnight, Vice-Minister for Finance Li Yong said that China remains firmly committed to reforming its exchange rate regime, but there is no set timing for when the reforms will take place.

Officials from the People's Bank of China will visit the Treasury Department next week for ??regular technical discussions on economic and financial issues, including foreign exchange,'' a Treasury spokesman told Dow Jones Newswires.

On yesterday, people familiar with the situation told Dow Jones Newswires PBOC officials met Wall Street investors this week, but that the discussions have nothing to do with the recent speculation about a reform of China's currency policy.

Market participants continue to speculate over the timing of a yuan move, with some saying a change could come as early as Sunday, when China holds a special money market trading session in Shanghai. (MP/Agencies)