Dollar Flat vs Euro on Security Concerns

Wed Aug 4, 2004
By Gertrude Chavez

NEW YORK (Reuters) - The dollar traded nearly flat against the euro on Wednesday, paring some of its earlier gains, as traders turned cautious ahead of Friday's payrolls report after a survey on the U.S. services sector showed a soft employment figure.

Heightened security tensions also undermined the U.S. currency, fueling some buying of euros and Swiss francs, a safe-haven refuge in times of geopolitical worries, analysts said.

The Institute for Supply Management's non-manufacturing index for July came in at a stronger-than expected 64.8, compared with 59.9 in June, but the survey's employment index fell to 50, down from June's 57.4. In the survey, 50 marks the threshold between growth and contraction.

"What this means is that it throws some doubt on the upcoming non-farm payrolls to be released on Friday, so July employment may not be as strong as earlier expected," said Michael Woolfolk, senior currency strategist at Bank of New York.

By midday New York trade, the euro was trading at $1.2049 (EUR=: Quote, Profile, Research) , nearly flat on the day. Analysts said that the euro rose to session highs around $1.2067 after a minor blast in Athens, Greece at a building belonging to a highways company, which maintains the city's new ring road.

Traders were also unsettled by rumors that a commercial aircraft flying from London to either Washington or New York had gone missing. British and U.S. air traffic controllers, however, subsequently denied the rumor.

"Basically, the ISM's employment component moved the euro back up to $1.20. Then the Athens news gave the euro some legs," said David Leaver, senior trader at Gain Capital in Warren New Jersey.

Leaver predicted that between security concerns and declining expectations surrounding Friday's U.S. employment report, the currency market was likely to be a bit messy this week.

The Swiss franc traded higher across the board due to security-tension news. The dollar fell 0.3 to 1.2744 francs (CHF=: Quote, Profile, Research) , and the euro dropped as well to 1.5361 francs (EURCHF=: Quote, Profile, Research).

Against the yen, the dollar held its gains at 111.29 yen (JPY=: Quote, Profile, Research) . Sterling fell slightly to $1.8244 (GBP=: Quote, Profile, Research) .

Separately, the U.S. Commerce Department said U.S. factory orders rose 0.7 percent in June, compared with a revised 0.4 percent gain in May that was initially reported as a 0.3 percent fall. Markets were expecting an increase of 0.5 percent.

Overall, analysts said the U.S. data still give the impression that the world's largest economy is still firing on nearly all cylinders, although higher oil prices could dampen the global outlook and eventually hurt the United States, a huge oil importer.
So far, it has been the yen that has suffered the brunt of soaring crude costs, despite robust Japanese economic numbers. The yen suffered broad-based losses on Wednesday as record high oil prices dimmed the outlook for Japan's recovery and encouraged investors to pull out of Asian stock markets.

Tokyo's benchmark stock index, which tumbled to its lowest in over two months as U.S. light crude touched $44.28 a barrel -- the highest price since oil futures were launched on the New York Mercantile Exchange in 1983.

HSBC currency strategist Marc Chandler has a generally bullish outlook on the yen, but he pointed out that "the risk to the scenario is that the good economic news (on Japan) has been priced in and that rising oil prices...will encourage profit-taking (on Japanese equities) by foreign investors."

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