The euro held its gains against the dollar yesterday as investors continued to speculate that the US economy will continue to decline.
However, analysts said it may not have significantly further to climb after news that the US unemployment rate rose only slightly to 4 per cent in November after holding at a 30-year low of 3.9 per cent for two months. There were also fewer new workers than expected. But workers' wages were 4 per cent higher last month than in November 1999, the largest year-over-year increase since January of last year. "We're slowing, not stumbling," said Mr Bill Cheney, chief economist at John Hancock Financial Services. The euro simply treaded water after the announcement, closing at $0.8860 from $0.8898 on Thursday.
The jobs news may mean the US Federal Reserve will reduce interest rates over the coming months. Speculation that the US may cut rates to stimulate the economy grew on Tuesday after Federal Reserve chairman Mr Alan Greenspan said the central bank's six interest rate increases over a year and a half helped slow the expansion "appreciably".
All the indications are that the ECB is unlikely to follow suit, or at least not quickly.
US interest rates are 6.5 per cent, a nine-year high, compared with the euro zone's 4.75 percent. The Federal Reserve's policy-setting Open Market Committee next meets on December 19th. According to Mr Brian Martin, global strategist at Barclays Capital in London, the US economy is now a little like the emperor with no clothes as the markets question the possibility of a hard landing.
Slower growth hurts currencies by making a region's assets less desirable. But according to Mr Stuart Kinnersley, chief investment officer at Nikko Global Asset Management, "we have seen the bottom in the euro and growth rates are not going to be much different from the US next year".
There are fewer signs of slowing growth in the euro zone. Retail sales unexpectedly rose 0.4 per cent in the month to September, according to EU figures released yesterday.
Growth in the euro zone will slow to 3.1 per cent, from 3.5 per cent in 2000, according to Organisation for Economic Co-operation and Development.
