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Dollar Drops Most in 8 Weeks as Jobs Data Cool Fed Taper Views

The dollar fell the most in more than eight weeks after U.S. employers added fewer workers last month than forecast, damping speculation the Federal Reserve will cut bond purchases this month.

The U.S. currency weakened versus a majority of its 16-most-traded counterparts after a Labor Department report showed payrolls rose by 169,000 in August, compared with a median forecast of 96 economists surveyed by Bloomberg that called for a 180,000 jobs gain. The U.S. jobless rate fell to 7.3 percent. Canada’s dollar rose to the highest level in more than two weeks as the nation added jobs last month at triple the pace forecast.

“Disappointing jobs data drove the U.S. dollar sharply lower,” Kathy Lien, managing director of foreign exchange at BK Asset Management, an investment advisory firm in New York, wrote in a client note. “However, the weak jobs number does not completely eliminate the possibility of a change in asset purchases this month.”

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 other major currencies, fell 0.7 percent to 1,031.35 at 5 p.m. New York time, after slipping 0.8 percent, the biggest drop since July 11.

Market Prices

The dollar fell 0.4 percent to $1.3178 per euro after reaching its strongest level since July 19. It dropped 1 percent to 99.11 per yen. The 17-nation euro depreciated 0.5 percent to 130.63 yen.

The dollar appreciated 5.1 percent this year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro advanced 5 percent, while the yen slumped 9.4 percent.

The Canadian dollar gained versus the majority of its most-traded peers as employment rose by 59,200 in August, exceeding a projected 20,000 job increase, according to median forecasts. The loonie, as the currency is known for the image of the aquatic bird on the C$1 coin, appreciated 1 percent to C$1.0405 per U.S. dollar, gaining the most since Aug. 8.

Malaysia’s ringgit declined versus all 31 of its most-traded peers after the country’s trade surplus fell to the lowest since April and amid prospects the Fed will cut stimulus that’s driven demand for emerging-market assets. The currency slipped 0.7 percent to 3.3285 per dollar after falling 0.8 percent, the biggest drop since Aug. 22.

Rupee Strength

India’s rupee climbed to the strongest level in more than a week on optimism steps taken by the country’s central bank to boost the supply of dollars will alleviate depreciation pressure on the currency. It rose 1.3 percent to 65.25 per dollar after touching 65.01, the highest since Aug. 27.

Trading today in over-the-counter foreign-exchange options totaled $19.6 billion, compared with $26.3 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate totaled $6.4 billion, the largest share of trades at 33 percent. Options on the euro-dollar pair amounted to $1.9 billion, or 9.6 percent.

Dollar-yen options trading was 76 percent more than the average for the past five Fridays at a similar time in the day. Euro-dollar options trading was 3 percent more than average.

Economic Analysis

The gain in U.S. jobs last month followed a revised 104,000 rise in July that was smaller than initially estimated, Labor Department figures showed today in Washington. Unemployment dropped to the lowest since December 2008 as the participation rate, which indicates the share of working-age people in the labor force, declined to 63.2 percent, the lowest since August 1978, from 63.4 percent.

“This is putting pressure on the dollar,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said in a telephone interview. “Not only did the headline number in August disappoint expectations, we also had a poor set of revisions. Markets are going to start to question whether or not the Fed will be tapering. ”

Minutes from the Federal Open Market Committee’s July 30-31 gathering, released Aug. 21, showed “almost all committee members agreed that a change in the purchase program was not yet appropriate,” and a few said “it might soon be time to slow somewhat the pace of purchases as outlined in that plan.”

The Fed this month will taper its monthly bond purchases to $75 billion from the current $85 billion pace, according to the median estimate of 34 economists surveyed today by Bloomberg News.

Dollar Outlook

“The dollar’s strength will continue,” said Kikuko Takeda, a senior analyst in London at the Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest financial group by market value. “The Fed is not looking for positive data to support the case for tapering, but it will go ahead with the plan unless there is particularly bad news.”

The euro fell yesterday after European Central Bank President Mario Draghi said that policy makers had discussed an interest-rate cut at a meeting this week.

Draghi said the ECB is “ready to act” as rising money-market rates threaten his drive to reassure investors that borrowing costs will stay low. He spoke after policy makers kept the benchmark rate at a record-low 0.5 percent.

The dollar declined for the first time in five days against the yen as Treasury 10-year yields fell from the highest level in more than two years. U.S. 10-year yields dropped six basis points, or 0.06 percentage point, to 2.93 percent, after reaching 3 percent for the first time since July 2011.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Andrea Wong in New York at awong268@bloomberg.net

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

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