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Economic data lifts euro
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July 3, 2000: 9:24 a.m. ET
U.S. economy slowing, European economy accelerating; yen strong
By Gordon Platt
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NEW YORK (CNNfn) - A consistent string of favorable economic data from Europe has helped the euro to regain its strength, currency traders and analysts said.
 "The U.S. economy is slowing and Europe is accelerating," said David
Gilmore, partner at Foreign Exchange Analytics, Essex, Conn.
"There will be less tightening from the Federal Reserve and more tightening from the European Central Bank," he forecast.
The decline in the French unemployment rate in May, reported Friday, capped a series of strong reports on the European economy.
Analysts said the U.S. economy is at the top of its growth curve, poised to fall down from the heights, while the European economy is only just beginning to move up the curve.
The focus this week will be the U.S. employment report for June, to be released Friday. A rise of about 250,000 in non-farm payrolls is expected, with the unemployment rate forecast to hold steady at 4.1 percent.
"The labor market is still pretty tight," Gilmore said. "But there are no red alarms on wage pressures." Hourly earnings for June are expected to rise about 0.4 percent.
If payrolls fail to bounce back from their softness in May, the Fed could back away from talk that it will raise interest rates by one-quarter point at the August meeting of Fed policy makers, Gilmore said.
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The federal funds market is pointing to a quarter-point rise in August.
"The Fed still has a tightening bias. It could go up by 50 basis points," said Andrew Chaveriat, currency technical analyst at Paribas in New York, referring to a possible half-point rise in the overnight federal funds rate.
The U.S. economy grew at at 5.5 percent rate in the first quarter, but is expected to grow much more slowly in the second half of the year, Chaveriat said.
The euro touched 96 U.S. cents Friday but slipped back and stood at about 94.85 cents early Monday. "The euro is at a critical stage," Chaveriat said. "It is trying to get back to 97 cents and then parity later this summer."
Will Japan raise interest rates?
The failure of the Fed to raise rates at last week's meeting was a non-event for the foreign exchange market, Chaveriat said. Nobody was expecting the Fed to tighten, he said.
The yen now stands at about 105.80 to the dollar, and likely will continue to strengthen to around 104, Chaveriat said. "As long as the move is orderly, there is not likely to be any intervention by the Bank of Japan," he said.
The market believes that the Japanese central bank is poised to raise interest rates, but if the "tankan" report on Japanese business conditions, to be released Tuesday, comes in weaker than expected, it could offset some of the rate-hike talk, Chaveriat said.
The tankan, a quarterly survey by the Bank of Japan, is difficult to forecast, said Carl Weinberg, chief economist at High Frequency Economics, Valhalla, N.Y. "The market is watching for signs of improvement, and people may buy yen after the report comes out," he said.
"A torrent of public works spending and a windfall of liquidity moving into checking accounts from Postal Savings deposits could cause a huge increase in second-quarter gross domestic product," Weinberg said.
Few factors to sustain Japan's growth
The problem, he added, is that there seem to be few factors that will sustain Japan's economic growth in the second half of the year.
"The tankan will not be enough to prompt a rate hike," Weinberg forecast.
Japan still faces deflation risks and prices still are falling, he said.
The last three to four tankan reports have not had a major effect on the currency markets, said Chaveriat of Paribas. Still, there is talk of Japan normalizing its abnormally low interest rates, he said
Unemployment in Japan fell to 4.56 percent in May from 4.84 percent in April. "And we are certain that when June's figures are compiled, the unemployment rate will be lower still," said Dennis Gartman, editor and publisher of The Gartman Letter.
The decline in the jobless rate makes it more and more likely that the zero interest rate policy will be abandoned sooner than expected, Gartman said. The problem for Japan is that there are no good leaders anywhere on the political stage, he said. 
--Gordon Platt is a freelance columnist writing about currency markets for CNNfn.com
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