The euro fell the most against the dollar in more than three weeks
after European Central Bank President Jean-Claude Trichet signaled that
he may not increase interest rates again.
The 15-nation
euro also dropped against the pound as Trichet said that he has ``no
bias'' or ``pre-commitment'' following the decision to raise the ECB's
main refinancing rate by a quarter-percentage point to 4.25 percent.
His comments helped counter a Labor Department report showing U.S.
employers eliminated jobs in June for a sixth consecutive month.
Today's
interest-rate increase will help the central bank bring inflation back
below 2 percent, Trichet said at a press conference in Frankfurt.
Economic growth may weaken to 1.5 percent next year from 1.8 percent
this year and 2.6 percent in 2007, according to ECB staff.
Traders
reduced bets the ECB will increase rates further this year. The implied
rate on the December Euribor interest- rate futures contract fell to
5.14 percent, from 5.28 percent yesterday. The yield advantage of
two-year German bunds over comparable-maturity Treasury notes decreased
to 1.92 percentage points, making the European securities less
attractive to investors.
When Trichet signaled after
the June 5 policy meeting that an interest-rate increase this month was
``possible,'' the euro increased 1 percent against the dollar.
U.S.
payrolls fell by 62,000 last month, following a revised decline of
62,000 in May, the Labor Department said today in Washington. The
median forecast of 81 economists was for a reduction of 60,000. The
jobless rate remained at 5.5 percent after jumping in May by the most
in two decades.
The dollar briefly pared its gain
against the euro after a report showed U.S. service industries
unexpectedly contracted in June as orders and employment fell. The
Institute for Supply Management's index of non-manufacturing
businesses, which make up almost 90 percent of the economy, decreased
to 48.2, the lowest since January, from 51.7 in May. A reading of 50 is
the dividing line between growth and contraction.
Futures
on the Chicago Board of Trade showed an 18 percent chance the Fed will
increase its target rate for overnight lending between banks by a
quarter-percentage point at its Aug. 5 meeting, compared with 25
percent odds yesterday.