Dollar Drops to 14-Month Low on U.S. Jobs; Yen Slides

The dollar fell to the lowest versus the euro since November 2011 as a strengthening U.S. jobs market and expectations the Federal Reserve will sustain stimulus to ensure the recovery boosted investors’ risk appetite.

The shared currency rose against most major peers as separate data showed European manufacturing at its highest level in almost a year. The yen sank to a 2 1/2-year low amid bets Japanese Prime Minister Shinzo Abe will pick a new central-bank governor who will boost stimulus.

“The jobs report hit the sweet spot of not being too strong and not being too weak,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, said in a telephone interview. “It was strong enough to diminish some of the downside worries, but it wasn’t so strong that you had a situation where you’d be concerned about the Federal Reserve accelerating any shift in its monetary-policy approach.”

The dollar depreciated 0.5 percent to $1.3640 per euro at 5 p.m. in New York and slid to $1.3711, the weakest level in more than 14 months. The U.S. currency fell for a second week in its first back-to-back losses this year. The euro climbed 1.7 percent to 126.66 yen and touched 126.97, the strongest since April 2010. The dollar reached 92.97 yen, the highest since May 2010, before trading at 92.77, up 1.2 percent.

Stocks rallied, with the Standard & Poor’s 500 Index rising 1 percent.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- increased to the biggest since July 2011. It was 27,472 on Jan. 29, compared with net longs of 21,381 a week earlier.

Rand Gains

The South African rand gained versus all of its 16 most- traded peers as a purchasing managers’ index for the country rose in January to 49.1 from 47.4 the previous month. A reading below 50 indicates a contraction in factory output. The rand climbed 1.3 percent to 8.8398.

New Zealand’s dollar, nicknamed the kiwi, reached its highest level since August 2008 against the yen after Reserve Bank of New Zealand Governor Graeme Wheeler said the nation needs to reduce the budget deficit or face higher interest rates. The kiwi climbed 1.9 percent to 78.38 yen and touched 78.54. It added 0.7 percent to 84.49 U.S. cents.

Won Drops

The South Korean won fell versus most major peers. It had its biggest weekly loss versus the dollar since May on concern a weak Japanese currency will hurt the nation’s exports, and after the government proposed a tax on securities trading to curb speculative flows.

The won depreciated 0.8 percent to 1,097.38 and reached 1,098.25, its weakest level since Oct. 26. It lost 2.2 percent on the week.

The euro pared gains briefly after the U.S. jobs report raised concern the shared currency’s advance was too swift with the American economy showing signs of recovery.

“This market has been relatively long euros, and nonfarm payrolls are certainly an excuse to book some of that profit,” Dean Popplewell, head analyst at the online currency-trading firm Oanda Corp., said in a phone interview from Toronto. Long positions are bets a currency will gain.

Payrolls in the U.S. rose by 157,000 jobs, versus a Bloomberg survey’s forecast of a gain of 165,000. The figure followed a revised 196,000 advance in the prior month and a 247,000 surge in November, Labor Department figures showed today in Washington.

“This number suggests that the trend for stronger employment growth in the states is intact,” Jack Spitz, Toronto-based managing director of foreign-exchange trading at National Bank of Canada (NA), said in a telephone interview.

Unemployment Rate

The jobless rate unexpectedly rose to 7.9 percent, from 7.8 percent. A Bloomberg survey had forecast it would hold steady. The economy has recovered 5.51 million of the 8.74 million jobs that were lost as a result of the last recession.

The Fed said Jan. 30 it will continue to purchase $85 billion of Treasury and mortgage securities each month “if the outlook for the labor market does not improve substantially.”

Policy makers also left unchanged an earlier statement that they planned to hold the benchmark interest rate near zero as long as unemployment remains above 6.5 percent and projected inflation stays below 2.5 percent.

Fed Chairman Ben S. Bernanke and his Federal Open Market Committee colleagues are deploying record stimulus through an open-ended expansion of the central bank’s balance sheet after determining that the benefits from stoking a flagging economy outweigh any risk of financial instability or higher inflation.

European Manufacturing

The euro gained in January for a sixth straight month against the dollar, the longest winning streak since May 2003, as optimism increased that the worst is over in the currency bloc’s sovereign-debt crisis.

A gauge of manufacturing in the 17-nation region rose to 47.9 in January, the most since February 2012, from 46.1 in December, London-based Markit Economics said today. That was above an initial estimate of 47.5 on Jan. 24. The reading has been below the 50 level that signals contraction for 18 months.

The ECB is scheduled to meet Feb. 7 on interest rates.

Japan’s currency headed for a 12th weekly decline against the dollar as Abe faced a decision on who will replace Bank of Japan (8301) Governor Masaaki Shirakawa, whose term ends in April. It’s the longest weekly losing streak in records compiled by Bloomberg dating to 1971. Abe has pushed for action to spur economic growth and fight deflation.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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