Dollar driven lower on dismal US job report

LONDON: The dollar was driven lower Friday on dismal US labour market news that raised fresh concerns about the health of the world's largest economy and dampened prospects for a hike in US interest rates.

The single European currency in late-day trade had risen to 1.5730 dollars from 1.5590 late Thursday in New York.

The dollar was meanwhile trading at 105.35 yen, down from 105.93 on Thursday.

The much awaited US employment report showed the jobless rate surging to 5.5 percent in May from 5.0 percent reported in April, its strongest rise in 22 years and sharply higher than the 5.1 percent rate expected by many analysts.

The US economy shed 49,000 jobs in May, the fifth straight monthly decline, although smaller than the expected 60,000 loss.

The stark increase in the jobless figures made it more likely the Federal Reserve would forego hiking US interest rates, which would boost the dollar, in the near future despite building inflationary pressures from spiralling energy and food prices, analysts said.

Robert MacIntosh at Eaton Vance said the market expected the Fed to tighten monetary policy by half a point by the end of the year, probably beginning in the fall.

But the May unemployment report makes it more likely the Fed will "do nothing for longer."

Analysts said markets were also looking for a reason to sell the dollar against the euro following comments from European Central Bank President Jean-Claude Trichet.

Trichet, citing projected record high inflation in the eurozone this year, on Thursday warned that eurozone interest rates might have to be raised in July, making the euro even more attractive to investors.

"The signal by ECB President Trichet that the ECB intends to raise its key interest rate by a 0.25 points to 4.25 percent next month has understandably fuelled renewed demand for the euro," said Derek Halpenny of Bank of Tokyo-Mitsubishi.

But eurozone data released Friday was not particularly encouraging, with German industrial production posting a surprise 0.8 percent decline in April, much worse than analysts' expectations for a 0.2 percent increase.

"The boom is over. Just as the European Central Bank is shocking markets by pointing to a rate increase in July, the pillars of the economic upswing are crumbling," said Holger Schmieding at Bank of America.

In London on Friday, the euro changed hands at 1.5730 dollars against 1.5590 late on Thursday, at 165.72 yen (165.15), 0.7986 pounds (0.7962) and 1.6098 Swiss francs (1.6184).

The dollar stood at 105.35 yen (105.93) and 1.0237 Swiss francs (1.0379). The pound was at 1.9696 dollars (1.9578). On the London Bullion Market, the price of gold rose to 890.50 dollars per ounce at the fixing from 878.75 dollars late on Thursday.