Saturday, August 3, 2013

Dollar drops broadly after weaker-than-forecast jobs data

(Reuters) - The dollar fell against the euro and the yen on Friday as weak signals on the U.S. labor market lessened expectations that the Federal Reserve would start reducing its bond purchases in the near term.

The Labor Department reported that U.S. employers slowed their pace of hiring in July, data that could make the Fed more cautious about scaling back its monthly $85 billion bond-buying program, even though the jobless rate fell to a 4-1/2-year low.

After a string of better-than-expected data this past week that had buoyed optimism about economic growth in the second half of the year, the tepid jobs data served as a reminder that the recovery faces headwinds.

Expectations that the U.S. central bank may start winding down its monetary stimulus program as early as September have buoyed the dollar this year, but those hopes have faded a bit in recent weeks, and the Fed on Wednesday offered no indication of a near-term move at the end of a two-day policy meeting.

Less stimulus could prod a rise in interest rates, potentially making the dollar more attractive for investors.

"Any misconceptions that the Fed was looking to taper in September have been blown out of the water today after the nonfarm payrolls number disappoints to the n'th degree," said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York.

"The U.S. economy remains on a shaky foundation in terms of both GDP and employment. Until the foundation is strengthened, the Fed will be forced to continue its easing bias."

U.S. employers added 162,000 jobs in July, which was below the median forecast in a Reuters poll of 184,000. The jobless rate fell to 7.4 percent.

In late afternoon trade, the euro rose 0.6 percent to $1.3278, having hit a session peak of $1.3294, according to Reuters data.

Against the yen, the dollar shed 0.6 percent, to 98.98 yen, having fallen as low as 98.65 yen.

The July jobs report was in contract to Thursday's data on jobless claims and manufacturing data that showed the world's largest economy was recovering steadily. The robust data had pushed U.S. yields higher and widened the gap over German, British and Japanese bonds, and buoyed the dollar.

"This disappointing payroll number will undo some of the positive market momentum on the economy and the dollar from yesterday's strong ISM and jobless claims reports and justify the Fed's caution on quantitative easing," said Joseph Trevisani, chief market strategist at WorldWideMarkets, in Woodcliff Lake in New Jersey.

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