Thursday 18 January 2018

Disappointing US jobs numbers halt dollar's gallop versus euro

A construction worker in midtown Manhattan. Non-farm payrolls rose just 126,000 last month but the unemployment rate held steady at 5.5pc (Jin Lee/Bloomberg)
A construction worker in midtown Manhattan. Non-farm payrolls rose just 126,000 last month but the unemployment rate held steady at 5.5pc (Jin Lee/Bloomberg)
Colm Kelpie

Colm Kelpie

The dollar fell sharply against the euro yesterday after a surprisingly weak jobs report from the United States sparked concerns about a weakening labour market in the world's largest economy.

The dollar's seemingly inexorable rise in recent months has proved to be bad news for holidaymakers to the US from Ireland and wider Europe, as the dollar has risen in value from €1.39 in May of last year, to €1.05 just last month.

By mid-afternoon yesterday, the dollar had fallen to €1.10 from €1.08.

The culprit was unexpectedly weak jobs data which showed the number of jobs on offer last month was the lowest in a year.

The data could spark concerns about a possible slowdown in economic growth, which could also lead to a delay in the expected rise in US interest rates.

So-called non-farm payrolls rose 126,000 last month, the smallest gain since December 2013, and the unemployment rate held steady at 5.5pc.

The number of unemployed Americans remained little changed at 8.6 million.

A harsh US winter was blamed for contributing to the slowdown in hiring.

Analysts suggested that the US economy is starting to feel the effects of the stronger dollar, and the collapse in oil prices.

"Corporate profits have come under pressure, and hiring has been adjusted in response," said Jim Baird, chief investment at Michigan-based Plante Moran Financial Advisers.

The US central bank has appeared keen to raise its key overnight lending rate, which it has kept near zero since December 2008.

But the economy's recent softness has led investors to push back bets on the rate lift-off.

Some believe the Federal Reserve could even wait until next year, amid speculation it could be the autumn.

A stronger dollar, while making it more costly for holidaymakers here to travel to the US, is expected to boost Ireland's economic recovery, with the export and tourism industries poised to capitalise.

The weaker euro should be of huge advantage to Irish food companies and pharmaceutical firms that sell into the US. The dollar has been trading at multi-year highs against a range of currencies, partly as a result of the strengthening recovery in the US, and the prospect of an interest rate hike by the Federal Reserve.

Emergency measures being taken by the European Central Bank to kick-start the recovery in the Eurozone have also weakened the euro.

There was some good news in the employment report. Average hourly earnings, which are being closely watched for clues on the timing of a Fed rate hike, increased seven cents, lifting the year-on-year gain to 2.1pc.

Experts believe wage growth could gain some traction in the months ahead.

Irish Independent

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