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Dollar Weakening Versus European Competitors Friday

12:32, 3rd August 2012

(RTTNews) - The dollar has weakened versus its major European competitors on Friday, but has improved in comparison to the Japanese Yen. Investors were in a more positive mood at the end of the trading week, after the better than expected increase in U.S. non-farm payroll employment for July.

The ECB on Thursday decided to leave interest rates unchanged and hinted that it "may undertake outright open market operations." However, ECB chief Mario Draghi announced no concrete measures such as bond purchases of struggling peripheral nations to curb the region's debt crisis. The European markets sold off following the announcement.

Employment in the U.S. rose by more than anticipated in the month of July, according to a report released by the Labor Department on Friday, although the report also showed an unexpected uptick by the unemployment rate.

The Labor Department said non-farm payroll employment increased by 163,000 jobs in July following a downwardly revised increase of 64,000 jobs in June. Economists had expected employment to increase by about 100,000 jobs compared to the addition of 80,000 jobs originally reported for the previous month.

Despite the job growth for the month, the unemployment rate edged up to 8.3 percent in July from 8.2 percent in June. The increase surprised economists, who had expected the unemployment rate to come in unchanged.

The International Monetary Fund has said that spillovers from a failure of policies to get ahead of the euro area debt crisis could affect the entire Europe as the stresses are no longer a confined to the peripheral countries in the single-currency bloc.

Policy reactions by the whole euro area and its partners can mitigate these effects, the Fund said in its 2012 Spillover Report, published Thursday. Despite the progress in the face of constraints, not enough has been done to stop the spread of stresses and attenuate fiscal-growth-banking feedback loops, the report pointed out.

The dollar has been steadily declining in comparison to the Euro on Friday, pulling back from Thursday's high of $1.2133 to around $1.2380.

Eurozone retail sales volume rose 0.1 percent month-on-month in June, Eurostat reported Friday. The June increase was in contrast to a 0.1 percent fall forecast by economists. In May, retail trade increased 0.8 percent.

Germany's private sector activity declined less than initially estimated in July, but the rate of fall quickened from the previous month, data released by Markit Economics showed Friday.

The composite output index, which measures performance of both the manufacturing sector and the service sector, came in at 47.5 in July, slightly higher than 47.3 recorded in flash estimates. An index reading below 50 signals contraction, while one above suggests growth. The latest figure was lower than June's 48.1, indicating a faster deterioration in business conditions.

Economic growth in the United Kingdom will be restrained by weak demand in the world economy, in particular the euro area, a study by the National Institute of Economic and Social Research (NIESR) showed Friday.

The think tank expects the economy to contract 0.5 percent this year. Gross domestic product may rebound next year with 1.3 percent growth and the economy may see 2.4 percent expansion in 2014, despite downside risks from the euro area, according to the institute.

The greenback has also weakened in comparison to the pound sterling on Friday, retreating from Thursday's high of $1.5490 back to around $1.5650.

The British service sector expanded at the slowest pace in nineteen months in July, as the weakening economic climate weighed on activity, data from a survey by Markit Economics and the Chartered Institute of Purchasing and Supply (CIPS) showed Friday. The seasonally adjusted purchasing managers' index (PMI) for the service sector dropped to 51 in July from 51.3 in June. Economists were looking for a reading of 51.6.

The buck has gained some ground in comparison to the Japanese Yen on Friday, bouncing back from Thursday's low of Y78.061, to around Y78.580.

While respondents' comments were mixed, the results of the Institute for Supply Management's survey of activity in the service sector in the month of July showed continued growth at a slighter faster rate.

The ISM said its non-manufacturing index crept up to 52.6 in July from 52.1 in June, with a reading above 50 indicating growth in the service sector. The increase surprised economists, who had expected the index to edge down to a reading of 52.0.

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