Dollar Rises to Two-Month High as Employment Gains Top Forecasts

The dollar climbed to an almost two-month high after a Labor Department report showed the economy added more jobs than forecast last month, boosting bets the Federal Reserve will reduce stimulus.

The greenback gained against all of its 16 most-traded peers except Mexico’s peso as payrolls grew by 204,000 in October, versus the median forecast in a Bloomberg News survey for a 120,000 advance. The euro extended its biggest two-week decline in more than a year versus the dollar as Standard & Poor’s lowered France’s credit rating after an interest-rate cut in the region yesterday. The peso erased losses after policy makers signaled the end of rate reductions.

“It’s certainly a dollar-positive headline,” Douglas Borthwick, the head of foreign exchange at Chapdelaine & Co. in New York, said in a phone interview. “But, one, the Fed wants to seek growth in all the employment sectors and, two, one economic number doesn’t make a trend. And the market knows that very well.”

The Bloomberg U.S. Dollar Index rose 0.5 percent to 1,021.66 at 5 p.m. in New York. It touched 1,024.31, the highest since Sept. 13, as it breached 200-day and 100-day moving averages.

The dollar rose 0.4 percent to $1.3367 per euro after appreciating to $1.3296 yesterday, the strongest level since Sept. 16. The euro added 0.6 percent to 132.42 yen. The greenback rose 1 percent to 99.05 yen.

The common currency has dropped 3.3 percent over the past two weeks, the biggest such slide since July 2012.

Peso, Krona

Mexico’s currency advanced as the minutes of last month’s central-bank meeting showed policy makers, who reduced the key interest rate to a record low 3.5 percent, said borrowing costs below this level wouldn’t be advisable.

The peso gained 0.4 percent to 13.1681 per U.S. dollar after falling as much as 0.6 percent.

Sweden’s krona dropped against most of its major peers after a report showed industrial production was unchanged in September from a month earlier. Economists surveyed by Bloomberg had forecast a 1.3 percent increase.

The krona weakened for a second day versus the dollar, slipping 0.9 percent to 6.5939. It fell for the first time in five days against the euro, depreciating 0.6 percent, to 8.8151 after touching 8.8516, the weakest level since June 25.

The real fell dropped the most this week among Latin American currencies on concern Brazil isn’t doing enough to curb its budget deficit and as speculation mounted that Fed will begin curtailing stimulus.

The currency slipped 0.3 percent today to 2.3133, sliding to the weakest level since Sept. 5 and extending its weekly decline to 2.6 percent.

Jobless Rate

The dollar jumped as last month’s jobs increase beat all estimates in a survey of 91 economists, whose top prediction was a gain of 175,000 amid the disruption of the 16-day partial government shutdown that ended Oct. 17.

The gains followed a revised 163,000 advance in September that was larger than initially estimated, Labor Department figures showed today in Washington. The jobless rate rose to 7.3 percent from an almost five-year low.

“Markets will be starting to talk about December tapering again,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a phone interview. “Expectation for this jobs report was subdued, but it was a sizable surprise to the upside.”

March Taper

The Fed will maintain the level of purchases at $85 billion of bonds a month until March, according to the median estimate of 40 economists in a Bloomberg survey conducted Oct. 17-18. A survey in September forecast the first reduction would be in December.

Analysts pushed out their projections following the government shutdown, which they estimated reduced growth by 0.3 percentage point this quarter.

The Fed’s next policy meeting is scheduled for Dec. 17-18.

The dollar rallied the most on an intraday basis against the euro since December 2011 yesterday after the European Central Bank cut its benchmark interest rate to a record low 0.25 percent as a drop in inflation to the slowest pace in four years threatened its mission to keep prices stable.

The greenback extended gains after gross domestic product rose 2.8 percent on an annualized basis for the July to September period, topping the 2 percent forecast in a Bloomberg News survey, the Commerce Department said yesterday.

Euro Sinks

The euro declined today as S&P downgraded France to AA from AA+ with a stable outlook, saying the government’s reform of tax, labor markets, products and services won’t raise medium-term growth prospects.

The euro will drop to $1.33 against the greenback before the end of 2013, and will depreciate further to $1.32 by the end of the first quarter, according to the median estimate of 81 economists surveyed by Bloomberg.

Volume in over-the-counter foreign-exchange options on the dollar-yen exchange rate amounted to $16 billion today, the largest share of currency trades at 27 percent, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. The total was 98 percent more than the average trading for the pair for the past five Fridays at a similar time.

Options on the euro-dollar rate totaled $11 billion, or 18 percent of the total, with trading in the pair 54 percent more than average. Total options trading was $58 billion today, from $55 billion yesterday.

Europe’s single currency has gained 5.5 percent this year, the best performer among 10 developed-market peers tracked by Bloomberg Correlation-Weighted Indexes. The yen has fallen 10 percent, the biggest decliner, while the dollar has gained 4 percent.

To contact the reporter on this story: 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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