By Masayuki Kitano
TOKYO, March 6 (Reuters) - The dollar fell to a record low
against a basket of major currencies and held near a record
trough against the euro on Thursday as weak U.S. service sector
and employment data kept alive fears of a U.S. recession.
The Institute for Supply Management's non-manufacturing index
for February beat expectations on Wednesday, but still showed the
service sector shrank for a second straight month. []
In addition, ADP Employer Services said on Wednesday that the
private sector cut 23,000 jobs in February, stirring worries that
U.S. jobs data due on Friday could come in weak.
The lacklustre data kept alive market expectations that the
Federal Reserve could cut interest rates by as much as 75 basis
points to 2.25 percent by or at its March 18 policy meeting,
keeping the dollar under pressure. <FEDWATCH>
By contrast, the European Central Bank is expected to keep
interest rates unchanged at 4.0 percent at a meeting later on
Thursday, and for a few months after that. []
"There are pretty clear expectations for a widening in
interest rate differentials, keeping the dollar at a
disadvantage," said Tomoko Fujii, head of economics and strategy
for Japan at Bank of America.
Given the divergence in monetary policy outlooks, the euro
could rise above $1.55 within the next month despite increasing
complaints among euro zone policymakers about the dollar's
weakness, Fujii said.
The euro was up 0.15 percent from late U.S. trading at
$1.5293 <EUR=>, inching closer to a record high of $1.5305 struck
on electronic trading platform EBS on Wednesday.
The dollar struck an all-time low against a trade-weighted
basket of major currencies, with the dollar index falling as low
as 73.365 <.DXY>.
On Wednesday, the dollar's fall to record lows helped lift
gold to an all-time peak of $991.80 an ounce <XAU=> and U.S.
crude oil futures to a record high of $104.95 a barrel <CLc1>.
YEN RISES
The dollar and higher-yielding currencies dipped against the
yen, dragged down by profit-taking as well as selling by overseas
funds and Japanese exporters, traders said.
The dollar fell 0.2 percent to 103.81 yen <JPY=> but held
above a three-year low of 102.60 yen hit on EBS on Monday.
The yen rose even though Tokyo share prices rose around 2
percent <> and other Asian stock markets rallied.
Moves in share prices are regarded as a barometer of
investors' risk appetite, and a rise in equities can fuel demand
for carry trades, which involve selling low-yielding currencies
such as the yen to invest in higher-yielding currencies.
Traders said the outlook for equities markets and risk
appetite in general was opaque, given lingering uncertainties
surrounding U.S. bond insurers.
Bond insurer Ambac Financial Group Inc said on Wednesday it
plans to sell at least $1.5 billion of stock and convertible
securities to help preserve the top-tier credit ratings critical
for its main insurance business. []
But investors were disappointed at the news, because to some
it signalled that banks were not committing their own funds to
help rescue Ambac after weeks of negotiations.
Concern that financial firms may suffer greater losses if the
bond insurers lose their top-notch ratings, leading to ratings
downgrades on the fixed-income securities they back, has kept
investors on edge since the start of the year.
The New Zealand dollar gained after the Reserve Bank of New
Zealand kept interest rates steady at 8.25 percent as expected,
but said inflationary pressures remained persistent. []
The high-yielding currency stood at $0.8015 <NZD=D4>, up from
around $0.7975 just before the rate decision.
Sterling was little changed at $1.9920 <GBP=> ahead of a rate
decision by the Bank of England later on Thursday. The central
bank is widely expected to keep interest rates on hold at 5.25
percent. []
(Additional reporting by Chikako Mogi, Editing by Michael
Watson)
