Dollar steadies, but new lows loom


NEW YORK -- The dollar steadied in quiet trading yesterday, but traders said it's poised to set new lows against the German mark and the Japanese yen if a drop in U.S. employment triggers another cut in U.S. interest rates.

The dollar closed at 1.4121 marks, little changed from 1.4125 marks, and 120.07 Japanese yen, up from 119.31 yen Tuesday.

Investors have knocked down the dollar for two days as they concluded that the September employment report, due out tomorrow, will be bad enough to force the Federal Reserve to trim interest rates again.

According to economists polled by Bloomberg Business News, the U.S. economy probably lost 114,000 jobs in September, after losing 83,000 in August.

A cut would sap demand for the dollar by making U.S. rates even less attractive than rates overseas than they are now. Yesterday, Bundesbank President Helmut Schlesinger was said to have ruled out any quick cut in German rates, calling such talk "misguided."

Even so, the dollar might not have much more room to fall, because many investors have already discounted a U.S. rate cut of 25 or even 50 basis points, traders said.

"The knee-jerk reaction will be to sell the dollar Friday if the number's bad and they ease," said James Choisez, a trader at Kyowa Bank. But investors will be quick to book profits by buying back the U.S. currency soon afterward, he said.

"After it comes in, how many more cuts can there be?" agreed Carl Amendola, assistant vice president at Bayerische Hypotheken und Wechsel Bank. "It should signal a good bottom for the dollar."

The dollar might yet test its all-time lows of 1.3860 marks, set Sept. 2, and 118.65 yen, set Tuesday night in Tokyo.

Early yesterday, the dollar dipped after an unexpected 6.1 percent decline in new home sales in September, traders said. Economists surveyed by Bloomberg Business News expected a 3.7 percent rise.

The drop in home sales was soon counteracted by the news that the Chicago Purchasing Management Association's index of manufacturing activity rose to 59.6 in September, from 58.43 in the prior month.

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