The dollar strengthened verses the euro and sterling last week as the ECB and Bank of England kept interest rate cuts on hold and highlighted further weakness in the economic picture.Further falls in the price of crude oil also helped the US currency.

Non-farm payrolls dropped by 84,000 in August, and revisions added another 58,000 to job losses for the prior two months, the Labour Department said on Friday. The jobless rate jumped to 6.1 percent, matching the level of September 2003, from 5.7 percent the prior month. Payrolls were forecast to drop 75,000 after a previously reported 51,000 decline in July, according to the economists.

Estimates ranged from declines of 40,000 to 150,000. The jobless rate was projected to remain at 5.7 percent. The report brings the total decline in payrolls so far this year to 605,000. The economy created 1.1 million jobs in 2007. Federal Reserve Bank of San Francisco President Janet Yellen on Thursday said there are “substantial’’ risks of slower U.S. economic growth, and inflation is likely to slow, declining to rule out the chance of an interestrate cut.

Service industries in the U.S. unexpectedly expanded in August, partly due to the largest price drop in almost two years. The Institute for Supply Management’s index of nonmanufacturing businesses, which
make up almost 90 percent of the economy, increased to 50.6 from 49.5 in July. Some companies are benefiting from the dollar’s past decline that helped export demand and a fall in energy prices.

`Companies are going to have to see a trend of upward movement in business activity and new orders to really feel comfortable with hiring in any kind of sustained fashion,’’ said the chairman of ISM’s non-manufacturing survey. “It looks like a mixed bag.’’ Economists had forecast the index would remain
unchanged at 49.5.

Orders at American factories went up more than economists had forecast in July, a sign that exports kept supporting the economy at the start of the third quarter. The 1.3 percent gain in bookings followed a 2.1 percent increase in June that was higher than previously estimated, the Commerce Department said. The figures underscore the boost to manufacturers from overseas demand for U.S. aircraft and machinery. Still, the stimulus from trade, which was the biggest in 28 years in the second quarter, may wane as Europe’s and Japan’s economies begin to slow and the dollar appreciates. Economists had forecast factory orders for July would rise 1 percent after a previously reported 1.7 percent gain in June.

A report on Wednesday showed construction spending in the U.S. fell more than forecast in July as activity slowed at power plants and factories. Private residential construction projects declined to the lowest level since March 2001, when the country slipped into the start of the last official recession.

The dollar rose to its highest level in almost seven months against the euro on Tuesday on speculation crude oil prices at a five-month low will support economic growth in the U.S., the world’s largest energy consumer.

Cheaper oil also boosted the dollar, with crude for October delivery having fallen as much as 8.7 percent since the end of last week to $105.46 a barrel, the lowest since April. The euro- dollar exchange rate and oil had a correlation of 0.9 in the past year. A reading of 1 would mean they moved in tandem.

This week, investors will have to wait for the most top tier data, with retail sales and the monthly producer price report out Friday.

British Pound

Sterling fell verses the euro after the Bank of England kept interest rates on hold last week, possibly delaying a recovery in Europe’s second biggest economy.

The Monetary Policy Committee held the benchmark rate at 5 percent, matching the forecast of economists, as it seeks to balance the risk of a recession with the fastest inflation in more than a decade. The UK currency extended gains against the euro after ECB President Jean-Claude Trichet said the euro region is undergoing an “episode of weak activity.’’

UK house prices fell a more-thanexpected 10.9 percent in August, HBOS said, further evidence of the nation’s worst housing slump since the early 1990s. Prices were forecast to decline 10.7 percent, according to economists.

“Sterling is still in over-valued territory,’’ said the head of currency strategy at HSBC. “Everyone is expecting rates to come down and the economy is in a terrible position.’’ Traders have still increased bets the Bank of England will cut rates.“Until there is some indication of relief on the inflation front, they are stuck,’’ said the chief economist at ECU Group. “But the economy is already in recession and interest rates will have to come down. It’s purely a matter of timing.’’

The U.K.’s main rate is the highest in the Group of Seven countries. The European Central Bank raised its rate to 4.25 percent in July and kept it there on Wednesday, as predicted by economists.

The central bank predicted the economy will grow about 0.1 percent on a year-on-year basis in the first quarter of 2009, compared with a previous forecast of 1 percent. Gross domestic product was unchanged in the second quarter from the first three months of the year.

U.K. mortgage approvals dropped to the lowest since at least 1999 in July, while surveys by the Chartered Institute of Purchasing and Supply showed that services and manufacturing industries contracted for a fourth month in August.

U.K. consumer confidence stayed at a four-year low in August and services from banks to recruiters shrank as the country edged closer to a recession. An index of shoppers’ sentiment held at 52, the lowest since the survey began in May 2004, according to Nationwide Building Society. The U.K. is facing “arguably the worst’’ economic crisis for 60 years, according to Chancellor of the Exchequer Alistair Darling. He said the downturn would be “profound and long-lasting,’’ and said he had no idea how serious the credit crunch would become.

U.K. consumer confidence stayed near a record low in August as the fastest inflation in a decade and falling house prices discouraged shopping, according to research group GfK NOP.

Euro

The euro fell to the lowest level verses the dollar this year on Thursday following comments by ECB President Jean-Claude Trichet that the eurozone economy in an “episode of weak activity.’’

The ECB lowered its 2008 economic growth forecast to about 1.4 percent from 1.8 percent and its 2009 prediction to 1.2 percent from 1.5 percent. The central bank raised its inflation forecast for this year to 3.5 percent from 3.4 percent and 2.6 percent from 2.4 percent for 2009.

The European Central Bank kept interest rates at a seven-year high to fight inflation even as the euroregion economy teeters on the brink of a recession. ECB policy makers left rate at 4.25 percent, as predicted by economists. The bank will wait until at least March next year to lower borrowing costs, a survey showed. The ECB wants to prevent a wageprice spiral as workers demand compensation for higher food and energy costs. It raised rates in July and council members Axel Weber
and Lucas Papademos said last week another increase may be necessary if inflation risks increase. At the same time, the economy contracted in the second quarter and inflation slowed after oil prices retreated from a record.

“I expect to see ECB begin lowering rates in the first quarter of 2009 as the economy continues to slow,’’ said Jamie Craggy. “This should lead to further euro weakness, particularly verses the dollar.’’

German factory orders unexpectedly fell in July, extending their longestever declining streak and increasing the likelihood that Europe’s largest economy is heading for a recession. Orders, adjusted for seasonal swings and inflation, slid 1.7 percent from June, the Economy Ministry said. Economists expected a gain of 0.3 percent. Orders slid 0.7 percent from a year earlier. Germany’s economy contracted 0.5 percent in the second quarter and may not recover in the third as exports falter and consumer spending slumps. Even though oil prices have retreated 24 percent since a July record, business confidence declined to a three-year low last month and consumer optimism fell to the lowest level in five years.

Yen

The yen reached the highest in more than a year verses the euro last week on concern the credit-market slump will lead to a global recession, prompting traders to sell higheryielding assets funded in Japan.

The yen often gains when demand for higher-yielding assets declines, as traders reverse hold back on carry trades. In carry trades, traders get funds in a country with low interest rates and buy assets where returns are higher. Japan’s 0.5 percent benchmark interest rate compares with 4.25 percent in Europe, 7 percent in Australia and 8 percent in New Zealand.

Date (GMT) Country Event Actual Survey Previous
Sep 7 23:00 Australia RBA’s Governor Glenn Stevens Speech
23:50 Japan Money Supply M2+CD (YoY) (Aug) 2.4% 2.1%
Sep 8 05:45 Switzerland Unemployment Rate (Aug) 2.4% 2.3%
05:45 Switzerland Unemployment Rate s.a. (Aug) 2.5% 2.5%
08:30 United Kingdom Producer Price Index – Input (MoM) s.a (Aug) -0.6%
08:30 United Kingdom Producer Price Index – Input (YoY) n.s.a (Aug) 30.1%
08:30 United Kingdom Producer Price Index – Output (MoM) n.s.a (Aug) 0.4%
08:30 United Kingdom Producer Price Index – Output (YoY) n.s.a (Aug) 10.2%
08:30 European Monetary Union Sentix Investor Confidence (Sep) -15.3
12:30 Canada Building Permits (MoM) (Jul) -5.5%
17:30 United States Fed’s Fisher’s speech
19:00 United States Consumer Credit (Jul) $14.3B
23:01 United Kingdom BRC Retail Sales Monitor – All (YoY) (Aug) -0.9%
23:01 United Kingdom NIESR GDP Estimate (Aug) 0.1%
23:01 United Kingdom RICS House Price Balance (Aug) -83.9%
Sep 9 01:30 Australia Home Loans (Jul) -3.7%
01:30 Australia Investment Lending (Jul) -0.3%
01:30 Australia National Australia Bank’s Business Conditions (Aug) -5
01:30 Australia Retail Sales (MoM) (Jul) -1%
06:00 Germany Trade Balance (Jul) 19.7B
08:30 United Kingdom Industrial Production (MoM) (Jul) -0.2%
08:30 United Kingdom Industrial Production (YoY) (Jul) -1.6%
08:30 United Kingdom Manufacturing Production (MoM) (Jul) -0.5%
08:30 United Kingdom Manufacturing Production (YoY) (Jul) -1.3%
12:15 Canada Housing Starts s.a (YoY) (Aug) 186.5K
14:00 United States Pending Home Sales (MoM) (Jul) 5.3%
14:00 United States Wholesale Inventories (Jul) 1.1%
21:00 United States ABC/Washington Post Consumer Confidence (Sep 7) -47
22:45 New Zealand Terms of Trade Index (2Q) 4.1%
23:50 Japan Adjusted Current Account (Jul) ¥1290.7B
23:50 Japan Domestic Corporate Goods Price Index (MoM) (Aug) 2%
23:50 Japan Trade Balance – BOP Basis (Jul) ¥252.1B
Sep 10 00:30 Australia Westpac Consumer Confidence (Sep) 9.1%
05:00 Japan Coincident Index (Jul) 103.3%
05:00 Japan Leading Economic Index (Jul) 92.9
08:30 United Kingdom Goods Trade Balance (Jul) -£7.7B
08:30 United Kingdom Total Trade Balance (Jul) -4.4B
09:30 European Monetary Union ECB Trichet’s Speech
11:00 United States MBA Mortgage Applications (Sep 5) 7.5%
12:30 Canada Labor Productivity (QoQ) (2Q) -0.3%
14:35 United States EIA Crude Oil Stocks change (Sep 6) -1.9
21:00 New Zealand RBNZ Interest Rate Decision 7.75% 8.00%
22:45 New Zealand Food Price Index (MoM) (Aug) 0.6%
23:50 Japan Core Machinery Orders (MoM) (Jul) -2.6%
Sep 11 01:00 Australia Consumer Inflation Expectation (Aug) 4.9%
01:30 Australia Employment Change (Aug) 10.9K
01:30 Australia Unemployment Rate (Aug) 4.3%
08:00 European Monetary Union ECB Monthly Report (Sep)
08:30 United Kingdom Inflation Expectations 4.3%
08:45 United Kingdom MPC Treasury Committee Hearings
09:00 European Monetary Union Employment Change (QoQ) (2Q) 0.3%
09:45 European Monetary Union European Comission’s Economic Growth Forecasts
12:30 United States Continuing Jobless Claims (Aug 30) 3435K
12:30 United States Import Price Index (MoM) (Aug) 1.7%
12:30 United States Import Price Index (YoY) (Aug) 21.6%
12:30 United States Initial Jobless Claims (Sep 6) 444K
12:30 Canada International Merchandise Trade (Jul) $5.8B
12:30 Canada New Housing Price Index (YoY) (Jul) 3.5%
12:30 United States Trade Balance (Jul) -$56.8B
18:00 European Monetary Union ECB Trichet’s Speech
18:00 United States Monthly Budget Statement (Aug) -102.8B
22:45 New Zealand Retail Sales (MoM) (Aug) 0.9%
22:45 New Zealand Retail Sales ex Autos (MoM) (Aug) 0%
23:50 Japan Gross Domestic Product (QoQ) (2Q) 1%
23:50 Japan Gross Domestic Product Annualized (2Q) 4%
Sep 12 04:30 Japan Industrial Production (MoM) (Jul) -2.2%
04:30 Japan Industrial Production (YoY) (Jul) 0%
09:00 European Monetary Union Employment Change (YoY) (2Q) 1.6%
09:00 European Monetary Union Industrial Production s.a. (MoM) (Jul) 0%
09:00 European Monetary Union Industrial Production w.d.a. (YoY) (Jul) -0.5%
12:30 Canada Capacity Utilization (2Q) 79.8%
12:30 United States Producer Price Index (MoM) (Aug) 1.2%
12:30 United States Producer Price Index (YoY) (Aug) 9.8%
12:30 United States Producer Price Index ex Food & Energy (MoM) (Aug) 0.7%
12:30 United States Producer Price Index ex Food & Energy (YoY) (Aug) 3.5%
12:30 United States Retail Sales (MoM) (Aug) 0.3%
12:30 United States Retail Sales ex Autos (MoM) (Aug) 0.4%
14:00 United States Business Inventories (Aug) 0.7%
14:00 United States Reuters/Michigan Consumer Sentiment Index (Sep) 63
Sep 16 18:15 United States Fed Interest Rate Decision 2%
Sep 17 04:00 Japan BoJ Interest Rate Decision 0.5%
Sep 18 10:00 Switzerland SNB Interest Rate Decision 2.75%

About the author

Content provided by One Financial (onecfd.com) Disclaimer: The information given in this message is provided on an information-only basis for marketing purposes and may not be construed as constituting the making of any recommendation or giving of advice on the part of One Financial. This information has not been prepared in accordance with any legal requirement to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. This information may have been prepared by firms other than One Financial and One Financial may not be held responsible for the accuracy or otherwise of its contents.

You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.