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Dollar retreats, bonds buzz
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March 8, 1999: 9:23 a.m. ET
Leftover payroll sentiment pushes dollar lower, but Treasury prices stay firm
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NEW YORK (CNNfn) - The dollar continued to fall back from both the yen and the euro Monday, staying aloof from the ebullient mood sparked in other U.S. financial markets by Friday's reversal of inflationary fears.
By 9:00 a.m. ET, the greenback had tumbled an entire yen to 121.68 yen, its second day of retreat from the Japanese currency, and receded to $1.0903 against the euro.
Exchange traders said Friday's payroll data had crushed hopes of a U.S. interest rate hike in the next few months, breaking near-term support for the dollar.
Although the payroll report indicated continuing strong labor market growth, a dollar-friendly sign, dollar bulls had balked at accompanying news that wage inflation had shrunk to nearly zero, knocking the dollar off its recent rallying course.
Interest rate watchers know that the Federal Open Market Committee (FOMC), and Federal Reserve Chairman Alan Greenspan in particular, make U.S. monetary policy with one eye on wage inflation, a key gauge of the health of the U.S. economy. Because Friday's figure was so low, few investors now expect the FOMC to raise interest rates in the near term.
Euro on the offensive
Meanwhile, the euro in particular benefited from speculation that European interest rates will not be dropping, as euro holders had previously feared.
According to published reports, German central bank president Hans Tietmeyer now says that lower European rates are unlikely as long as the euro remains at its current levels, near the lowest point in its ten-week trading life.
That said, European economic fundamentals are still lackluster compared with the boisterous U.S. economy. Germany, the region's economic core, teeters on the edge of a technical recession, and February employment figures due Tuesday are not expected to give the euro much real strength.
In addition, although the United Kingdom has not yet joined the euro zone, its economic outlook is also bleak, giving traders little hope for rescue when the European currency crosses the channel. Industrial production figures released Monday indicate that British manufacturing has fallen 0.3 percent compared with last year.
Bonds quietly buoyant
Although the dollar found little comfort in Friday's U.S. inflation figures, the news provoked euphoric buying on both Wall Street and the Treasury market.
On Monday, U.S. bond traders were still relieved at the sudden reprieve from the threat of higher interest rates ahead, but the buzz already was fading.
By 9:00 a.m. ET, the benchmark 30-year Treasury bond was up 8/32 of a point in price at 95-7/32, while the yield slid back to 5.58 percent.
Traders looked forward to a fairly quiet day, with the bond market expected to drift between profit taking inspired by Friday's euphoria and caution ahead of Tuesday's productivity report.
Productivity, the measure of how efficient U.S. workers are, is a major mitigating factor in wage inflation. High productivity allows the economy to grow at a breakneck pace -- as now -- without forcing employers to hire more people or pay them more. 
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