Strong U.S. jobs report, euro report boost dollar

By Tali Arbel

Associated Press

Published: Friday, May 6 2011 11:48 a.m. MDT

NEW YORK — A strong U.S. jobs report gave the dollar a lift Friday, while a report from a German newspaper saying Greece could withdraw from the euro bloc drove that currency lower — although analysts were skeptical about how realistic such a scenario was.

The bump up follows a long decline for the dollar, which hit multi-year lows against several currencies earlier this week.

The dollar has fallen because of the Federal Reserve's signals that it will keep rates low for at least the next few months in order to support the economy.

Other central banks around the world are raising rates to counter rising food and energy prices. Higher rates tend to support currencies.

On Friday, however, investors got some evidence of momentum in the U.S. economy after a recent run of weak data. The government said 244,000 jobs were added in April. Private employers added 268,000 jobs, the most since February 2006. But the jobless rate rose to 9 percent from 8.8 percent the previous month as more people looked for work.

"The firming in the labor market has to be a major topic of conversation at the Fed," said Joel Naroff of Naroff Economics in a research note. "More and more it is looking as if the recovery is on track despite the headwinds it is facing, and the FOMC will have to deal with that trend." The FOMC, or the Federal Open Market Committee, is the Fed panel that sets the country's interest-rate policy.

On Thursday, the president of the Federal Reserve Bank of Minneapolis, Narayana Kocherlakota, said that it would be "desirable" for the Fed to raise interest rates from their current range near zero by a "modest amount" toward the end of the year.

He's part of a minority at the Fed that has said emergency measures to support the economy should end this year.

In midday trading Friday in New York, the dollar built on recent gains against the euro after its steep 10 percent decline this year. The euro tumbled to $1.4408 from $1.4530 late Thursday. It had traded at $1.4942 on Wednesday, its highest level since December 2009.

Analysts said the main factor weighing on the euro was a report posted on the website of a German newspaper, Der Spiegel, that said the Greek government was considering leaving the euro currency bloc.

The report also said that the European Commission was to have an emergency meeting Friday night in Luxembourg that would addressing Greece's possible departure as well as a restructuring of the country's debt. The report cited anonymous sources in the German government.

Greece was bailed out last year and its economy has struggled amid steep cuts in government spending and other reforms put in place as part of the emergency aid package from its European neighbors and the International Monetary Fund.

The story "does seem to be having a market effect," said Ron Leven, currency strategist for Morgan Stanley in New York. But he downplayed the significance of the report. "For (Greece) to leave the euro is very complicated. It's not like they can just wake up tomorrow and say we're not in the euro anymore."

European officials denied or refused to comment on the report. A Greek government official denied reports that Greece was seeking an exit from the euro, while a spokesman for Luxembourg Prime Minister Jean-Claude Juncker, who also chairs the meetings of eurozone finance ministers, said there was meeting in Luxembourg Friday night.

The EU's monetary affairs commissioner Olli Rehn said he didn't know anything about such a meeting.

"It's being discussed behind closed doors. ... There's going to be denials until there's some type of agreement," said Michael Woolfolk, a currency analyst at the Bank of New York Mellon.

Against other currencies, the dollar moved higher or cut some of its losses. It rose to 80.39 Japanese yen from 80.19 yen, recovering from a dip below 80 yen that had prompted talk of a possible intervention by Japan to weaken its currency. The dollar hadn't fallen below 80 yen since March 18, when the Group of Seven countries' central banks intervened in foreign exchange markets to weaken the yen following its run-up as an earthquake, tsunami and nuclear crisis shook Japan.

Like the dollar and Swiss franc, the yen is perceived by traders as a safe haven asset and tends to gain during periods of economic or geopolitical stress.

The British pound traded at $1.6388 from $1.6379, coming off its earlier highs, while the dollar gained to 0.8773 Swiss franc from 0.8704 Swiss franc.

The U.S. currency came off earlier lows, trading at 96.56 Canadian cents from 96.90 Canadian cents.

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