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Platt: Dollar bulls unbowed
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July 10, 2000: 11:24 a.m. ET
Slowing U.S. economy fails to weaken currency; analysts see further rate hike
By Gordon Platt
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NEW YORK (CNNfn) - Signs of slowing in the U.S. economy have not been convincing enough to weaken the dollar significantly, analysts said.
The dollar slipped against the yen early Monday but remained near one-month highs against both the yen and the euro.
Analysts said higher U.S. rates still are possible despite the weak June employment report.
"Sentiment will swing back in favor of a Federal Reserve rate hike in August if June retail sales rebound," said Marc Chandler, chief currency strategist at Mellon Financial.
The retail sales report, due Friday, is expected to show a rise of 0.4 percent for June, following two months of declining sales, Chandler said. Industrial production, also due Friday, is expected to rise 0.3 percent.
The dollar climbed against the euro and the yen last week despite the softness in non-farm payrolls.
The dollar initially slid on the jobs data but recovered quickly as Wall Street cheered the latest sign of a slowdown, with employers adding only 11,000 jobs in June. The dollar followed stocks higher.
"There are still some signs of tightness in the labor market," said Bob Lynch, currency strategist at Paribas.
"Hourly earnings rose 0.4 percent, which is a pretty strong rise, and the unemployment rate fell back to 4.0 percent," Lynch noted.
Analysts said seasonal adjustment factors in the June report were badly skewed by changes in school years, weather conditions, auto industry schedules and Census hiring. The Census Bureau was a net destroyer of 190,000 jobs last month, rather than being a net creator of jobs.
Lynch said the payroll data were not definitive and that market participants are waiting for additional evidence confirming a U.S. slowdown before taking the euro higher. He said the euro is consolidating in a range of 94 to 96 U.S. cents.
"The jobs report only goes part of the way toward confirming slower U.S. growth," Lynch said. "It is not enough to push the euro up to 97 cents anytime soon."
The Euro traded at 95.12 cents Monday morning, little changed from 95.08 cents Friday.
Meanwhile, the yen weakened last week as Bank of Japan rate hike expectations were scaled back, Lynch said. Last week's "tankan" report on business conditions showed that smaller companies are not participating in the nation's fragile recovery.
The dollar fell against the Yen Monday morning to ¥106.82 from ¥107.43 in New York.
"The Bank of Japan is serious about raising interest rates, even though prices are still falling and consumer demand remains weak, but we do not expect any rate hike before the fall," said Carl B. Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y.
The European Central Bank also appears to be in no hurry to raise rates again. Otmar Issing, the ECB's chief economist, told a French newspaper the June rate hike "cleared the horizon for some time." This was taken to mean that interest rate hikes are not likely before the end of the summer.
"In our view, the gap between Euroland and U.S. dollar or sterling interest rates will never close at this pace, at least not for a very long time," Weinberg said.
There are other concerns that are restraining the euro, said Dennis Gartman, editor and publisher of The Gartman Letter.
"The most notable of these is a growing problem within the European Community itself regarding the European sanctions imposed upon Austria," Gartman said.
Austria is demanding that the sanctions be lifted, or it will use its veto power to stop any or all expansion of monetary and political union in the future, he said. The small states of Europe do not want the big states to dominate them, he added.
"This situation is equivalent to the United States after the Articles of Confederation and before the Constitution," Gartman said.
He said that reading the "Federalist Papers" could shed enormous light upon the current debates within Europe.
-- Gordon Platt is a freelance columnist writing about currency markets for
CNNfn.com 
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