The exchange rate of the American currency last week detached from a record low level against the euro in global foreign exchange markets, but did not significantly benefit from better-than-expected employment data in the U.S., as they failed to convince investors that the U.S. Federal Reserve would refrain from further interest rate cuts.
After a record low of 1.4281 dollars for the euro, the exchange rate of the greenback slightly strengthened towards the end of the week, closing trading on Friday at 1.4133 dollars for the euro, almost one percent higher than the previous week. It also strengthened by a quarter of a percentage point against the British pound, to 2.0418 dollars for the pound. The Swiss franc weakened by 1.25 percent, to 1.178 francs for the dollar. At the same time, against the yen, the dollar depreciated by 1.3 percent, to 117 yen. It also fell to the lowest level against the Australian dollar in the last 23 years at 0.9004 U.S. dollars for one Australian dollar. It plunged to the lowest level in the last three decades against the Canadian dollar, following the announcement that the unemployment rate in Canada is the lowest in 33 years. Thus, the Canadian dollar amounts to 0.9816 U.S. dollars.
The dollar recovered from a recently reached record low level against the euro as market participants expected good employment indicators in the U.S. for September for most of the past week. On Friday, the U.S. Department of Labor announced that the U.S. economy created 110,000 new jobs last month, the highest since May, and revised the data for August and July upwards.
However, after the initial enthusiasm of investors, optimism waned. Namely, most investors concluded that this would not be enough to deter the Fed from further interest rate cuts in the U.S. The current key interest rate stands at 4.75 percent, after the Fed decided to lower it by half a percentage point in September. The dollar also drew support from the increasingly widespread assessment among traders that the rise in the value of the euro could slow down due to concerns among European officials about the strength of the single European currency. “An increasing number of European officials are trying to pressure the euro exchange rate with statements. This could clip its wings a bit,” explains Peter Fontaine from the Brussels bank KBC. Many analysts believe that the President of the European Central Bank (ECB) Jean-Claude Trichet, with his statement on Monday regarding the orientation of the U.S. government’s monetary policy towards a strong dollar, is paving the way for a coordinated initiative ahead of this month’s G7 meeting for stronger statements from monetary officials regarding currency exchange rates.
