Thursday July 2, 06:29 PM
Dollar rises as US jobs report rattles markets
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LONDON (AFP) - The dollar climbed Thursday against the euro as a worse than expected US unemployment report sent shockwaves through financial markets and the eurozone kept interest rates stable despite deflation fears.
The euro was changing hands at 1.4007 dollars in late trading in London compared to 1.4146 dollars late on Wednesday.
The European single currency also fell against the Japanese yen, going down to 134.59 yen against 1236.71 yen previously.
The dollar fell to 96.00 yen from 96.64 yen late on Wednesday.
Analysts said the market action was due to dealers buying up the dollar, seen as a "safe haven" currency during troubled economic times, and selling the euro which is seen as riskier on currency markets.
A closely watched US Labor Department report showed US job losses had surged to 467,000 in June, pushing the unemployment rate to a new 26-year high of 9.5 percent, dampening hopes for an early recovery from recession.
The report, seen as one of the best indicators of economic momentum, reversed the improvement seen last month when job losses fell to 322,000.
Analysts had expected a June number of 365,000 job losses, but a higher unemployment rate of 9.6 percent. The jobless rate in May was 9.4 percent.
"The disappointing report highlights the severity of the downturn and suggests a bottom for employment is not near," said Sophia Koropeckyj at international ratings agency Moody's Economy.com.
"The labor market's struggles continue, and there is little indication that conditions are improving," she said.
Meny Grauman, economist at CIBC World Markets, said some analysts have gotten ahead of themselves in anticipating an economic recovery.
"This shows the recession lives on in the United States," he added.
"It's a question of the pace of decline and not recovery. The economy continues to contract at a slower pace than at the beginning of this year, but it's still a steep ride."
Also on Thursday, the European Central Bank kept its main interest rate steady at a record low of 1.0 percent as ECB chief Jean-Claude Trichet downplayed a threat of deflation gutting the eurozone.
The ECB expects "the current episode of extremely low or negative inflation rates to be short-lived," Trichet told a press conference two days after an EU estimate said eurozone consumer prices had fallen for the first time in June.
Economists are concerned the 16-nation bloc's economy will struggle to recover from recession if consumer prices fall broadly over a sustained period.
That encourages households to postpone purchases in expectation of still lower prices, undermines production and threatens job numbers that are now starting to contract sharply in countries like Ireland and Spain.
Trichet's words apparently had little calming influence on the markets however, analysts said, and also on Thursday the EU reported the eurozone unemployment rate climbed to a 10-year high of 9.5 percent in May.
In trading here on Thursday, the euro was changing hands at 1.4007 dollars against 1.4146 dollars late on Wednesday, 134.59 yen (136.71), 0.8564 pounds (0.8581) and 1.5202 Swiss francs (1.5204).
The dollar stood at 96.00 yen (96.64) and 1.0845 Swiss francs (1.0744).
The pound was at 1.6369 dollars (1.6483).
On the London Bullion Market, the price of gold eased to 929.50 dollars an ounce from 938.25 dollars an ounce late on Wednesday.
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