Dollar mixed on US economic reports, ECB comments

AP News
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Posted: Dec 03, 2009 3:46 PM

The dollar was mixed Thursday as investors read U.S. economic reports as further evidence the recovery will be bumpy, while the European Central Bank left its main interest rate unchanged at a historic low of 1 percent and announced it would end some of its extraordinary measures supporting markets.

Service sector activity and retail sales unexpectedly shrank in November as consumers held back on purchases, while the Labor Department said new jobless claims dropped for a fifth straight week.

The 16-nation euro bought $1.5092 in late New York trading, up from $1.5036 late Wednesday, while the British pound fell to $1.6566 from $1.6640.

The dollar slid overnight after Bank of America Corp.'s announcement late Wednesday that it would repay its $45 billion in government bailout money, while gold had another record-setting day. The commodity is considered a hedge against the greenback because of its stable store of value.

But investors began pulling back from other riskier assets, returning to the safe haven of the U.S. currency after the ECB's comments and ahead of Friday's employment data, according to David Gilmore of Foreign Exchange Analytics in Essex, Conn. The government is expected to report that employers shed 130,000 jobs in November and that the unemployment rate remained steady at 10.2 percent.

European Central Bank President Jean-Claude Trichet said Thursday the economy of the 16 countries that use the euro will grow at a moderate pace next year, but the recovery will be "uneven and subject to risks." He confirmed widespread speculation that the ECB will start winding down its extraordinary measures, which include cheap loans to banks that were used to provide the financial system with extra liquidity during the financial crisis.

"The improved conditions in financial markets have indicated that not all our liquidity measures are needed to the same extent as in the past," Trichet said.

The upcoming 12-month money offering on Dec. 16 would be the final one, and the 6-month offering would end in March next year, he said.

"The comments were nothing earthshaking, but they were the first baby steps toward the exit door of unconventional monetary policy," Gilmore said.

The ECB kept its main interest rate unchanged at 1 percent _ a record low, but still higher than the Federal Reserve's or the Bank of England's rates. Higher interest rates can support a currency as investors move funds to where they earn the best returns.

In other late trading Thursday, the dollar rose to 88.21 Japanese yen from 87.43 yen. This week, Japan's central bank said it would further ease monetary policy in order to combat a surging yen and dropping prices.

The dollar fell to a 14-year low of 84.81 yen on Friday. Japanese officials then had mentioned intervention as a possibility in order to weaken the yen. But this week's action _ plans to offer about 10 trillion yen ($115.8 billion) in short-term loans to commercial banks to boost liquidity and maintaining the key interest rate at 0.1 percent _ could help weaken the yen without resorting to selling the currency, analysts said.

The dollar edged up to 1.0536 Canadian dollars from 1.0515, but fell below parity to 0.9989 Swiss francs from 1.0025 francs. Before last week, the dollar had traded below the franc only once before, ever.