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.