Gloom in the United States despite this week's interest rate cut and an unexpected rise is euro-zone consumer confidence pushed the euro close to $0.96 yesterday.
The euro rose as high as $0.9594 - its best since July 6th last and to an 11-month high against the yen. At the close of European trading, it was worth $0.9514 from $0.9439 on Thursday.
Many analysts expect the euro to reach parity with the dollar within weeks or months.
The euro fell briefly below $0.95 after US jobs data came in slightly above expectations, but it soon rebounded. The US unemployment rate held steady at 4 per cent in December as the number of workers grew modestly, adding to signs of a slowdown that has darkened the outlook for the US economy.
Payrolls outside the farm sector grew by 105,000 after a sharp downwardly revised gain of 59,000 in November, the US Labour Department said in its crucial monthly employment report. November's increase had previously been reported as 94,000. December's payrolls growth slightly exceeded forecasts by analysts, who had on average predicted a rise of 102,000.
The department said more than half of the overall jobs growth was accounted for by the government, while the nation's manufacturers continued to shed jobs - continuing a pattern of slowing jobs growth in the economy's private sector.
At the same time, sales of new homes in the US fell 2.2 per cent in November to 909,000 units. The decline was sharper than had been anticipated on Wall Street, where analysts had foreseen a fall of 0.3 per cent.
Other reports backed the view that the US economy was undergoing a more marked slowdown than the euro zone. Many analysts are forecasting growth rates of about 3 per cent for the US and euro zone this year, with the US slowing from 5 per cent growth last year. There was more positive news in Europe. Euro-zone consumer confidence rose unexpectedly in December for the first time in four months, while producer prices rose at double the rate expected by economists. But German manufacturing orders fell for the second time in three months in November, by three times the rate analysts had forecast. On Thursday, the ECB yesterday left rates unchanged at 4.75 per cent, in line with analysts' expectations, while the Federal Reserve cut rates on Wednesday by half a percentage point, closing the gap between the two.
Interest rates are likely to get closer as the Fed embarks on a series of rate cuts over the remainder of this year. As a result many analysts expect the euro to reach parity.
At the same time, the yen tumbled to a 17-month low against the dollar and an 11month low against the euro after a newspaper report triggered speculation that Japanese exporters would keep more of their earnings overseas to reap higher returns. The report said Toyota, the world's third-biggest automaker, would manage its overseas profits in local currencies. Traders took the report as a signal Toyota would convert less of its earnings abroad to yen, betting that the Japanese currency would fall more. Exporters such as Toyota helped boost Japan's trade surplus with the US 18 per cent to $5.9 billion in November from a year earlier, leaving Japanese companies with a growing supply of dollars to sell as they bring overseas profits home.
