Dollar rises versus euro after mixed jobs report

The dollar was higher against the euro late Friday but its gains were muted after a mixed US employment report sparked fresh doubts about the strength of the US recovery, dealers said. They said news of a sharp drop in the headline US unemployment rate to 9.4 percent in December from 9.8 percent in November was welcome but new job creation fell well short at 103,000, compared with forecasts for 150,000.
The figures disappointed investors who had been hoping the report would confirm recent stronger US data, which has bolstered the dollar and stock markets generally. At the same time, there was enough in the report to allow for guarded optimism that the US recovery remained on track, especially as a sharp spike in money market rates for Portugal was a reminder that the eurozone's deep-rooted debt problems have not gone away.
Talk the Swiss National Bank had excluded from eligibility the use of Portuguese bonds as collateral for bank loans weighed on the euro. Fears persisted even after the Swiss National Bank said that was not the case. In late Friday trade, the euro fell to $1.2927 from $1.3006 in New York late Thursday. The dollar slipped to 83.07 yen from 83.34 yen on Thursday.
Michael Hewson of CMC markets said the fall in the headline US unemployment rate allowed for continued dollar gains but added that the eurozone's continuing problems are keeping the euro under pressure. The rates demanded by investors to buy Portuguese 10-year bonds jumped sharply Friday to 7.161 percent from 6.957 percent on Thursday to hit their highest level since Lisbon joined the eurozone.
Spain too was under pressure and Jacq said "these countries have weak growth and weak inflation. Add to that high bond yields and the cocktail is explosive." While the US data helped the dollar, US Federal Reserve chairman Ben Bernanke warned Congress Friday the rate of jobs growth was not enough to replace the 8.5 million jobs lost during the economic downturn.
Support for the euro in the $1.2915 area from sovereign buyers has prevented its collapse, traders said. Comments by China that it will continue to buy eurozone debt supported the single currency in past days and China made another positive statement on Friday. Options traders said there has been steady demand for downside structures in euro/dollar and other euro crosses such as those versus sterling, the Swiss franc, the Australian dollar and a broad swath of emerging market currencies.
Sharp losses in euro/sterling pressured the euro against the greenback, with one US investment bank reportedly making a huge order to sell the single currency versus the pound. A suddenly upbeat outlook on the UK economy has everybody jumping into the "buy sterling" mentality. With British inflation expectations ramping up again, the likes of BNP Paribas, Citigroup and Societe Generale have penciled in one to two rate hikes from the Bank of England by the end of the year, all supportive of the pound.
In late London trade, the euro changed hands at $1.2927 against $1.3006 late in New York on Thursday, at 107.39 yen (108.41), £0.8313 (0.8409) and 1.2493 Swiss francs (1.2558). The dollar stood at 83.07 yen (83.34) and 0.9664 Swiss francs (0.9650). The pound was at $1.5449 (1.5513). On the London Bullion Market, the price of gold slipped to $1,367 an ounce from $1,368.50 late on Thursday.