Dollar Falls to 3-Month Low as Jobs Data Trail Forecast

The dollar weakened to a three-month low against the euro as U.S. employers added fewer jobs in August than forecast, boosting speculation the Federal Reserve will increase its monetary stimulus.

The Dollar Index dropped to the weakest level since May 11 as the extra liquidity from a third round of asset purchases by the U.S. central bank, known as quantitative easing, may debase the currency. Canada’s dollar rallied to its strongest in a year versus the U.S. currency after the nation added more jobs than projected, fueling expectations of a central bank interest-rate increase. The Swiss franc fell to the weakest since January against the euro.

“The market is by and large divided in to three camps; that QE comes in September, December, or not at all,” said David Doyle, a strategist at Macquarie Capital Markets in Toronto. “The market is moving more and more towards the September camp and that is being priced in.”

The dollar fell 1.5 percent to $1.2816 per euro at 5 p.m. in New York, touching the lowest level since May 22. It lost 0.8 percent to 78.24 yen. The 17-nation currency added 0.7 percent to 100.25 yen.

’This Pop’

“You’re getting this pop because people are looking at these numbers as disappointing and Mr. Bernanke told us that he was very concerned and frustrated with progress in the labor markets, so the market is reading into this,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “September is still possible and if it’s not September, it increases likelihood of October and December.”

The Dollar Index fell 1.1 percent to 80.172. The measure of the greenback versus the currencies of six major trading partners breached its 200-day moving average. The gauge may fall to 79.861, the 200-week moving average, IDEAglobal, a Singapore-based research and consulting company, wrote to clients today.

The 14-day relative strength index for the euro versus the dollar rose above the 70 level today for the first time since May 2011. A reading above 70 signals an asset may have rallied too far too quickly and is due for a correction.

Futures traders raised bets that the shared currency will decline against the dollar for the first time in four weeks. Net-shorts rose by 745 to 102,306 in the week ended Sept. 4, according to data from the Commodity Futures Trading Commission compiled by Bloomberg. That compares with a record 214,418 reached June 5.

Price Swings

Implied volatility, which signals the expected pace of currency swings, for the currencies of Group of Seven nations fell to 8.04 percent, the lowest since October 2007, according to a JPMorgan Chase & Co. index. Lower volatility makes investments in currencies with higher benchmark lending rates more attractive because the risk in such trades is that market moves will erase profit.

Canada’s currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, appreciated 0.4 percent to 97.86 cents per U.S. dollar.

Bank of Canada Governor Mark Carney said “some modest withdrawal of the present considerable monetary policy stimulus may become appropriate” at the bank’s Sept. 5 meeting.

The franc fell to 1.20981 versus the euro, touching the lowest since Jan. 9, declining for a fifth day. The Swiss National Bank put a cap of 1.20 per euro on the franc in September 2011 to limit its strength after investors sought the currency as a haven from the euro-area’s debt crisis.

The pound rallied 0.5 percent to $1.6010, exceeding $1.60 for the first time since May 16.

ECB Plans

European Central Bank President Mario Draghi said yesterday the central bank will target government bonds with maturities of between one and three years through its Outright Monetary Transaction scheme. The purchases will be fully sterilized, meaning the impact on money supply will be neutral, and the ECB will not have seniority, he said.

The euro has fallen 3.4 percent this year among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen fell 4 percent, and the dollar declined 2.1 percent.

The U.S. currency fell as a report showed nonfarm payrolls increased 96,000 in August, compared with a revised 141,000 the previous month. Fed Chairman Ben S. Bernanke said last week at the Jackson Hole, Wyoming, economic summit that weak hiring and unemployment exceeding 8 percent posed a “grave concern.”

Bernanke at Jackson Hole said Aug. 31 that bond purchases are an option as central bankers weigh further steps to spur growth on top of the $2.3 trillion in so-called quantitative easing, or QE, since 2008. The policy-setting Federal Open Market Committee meets Sept. 12-13.

“The Fed has been looking for an opportunity to pull the trigger,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp. “This report means a 70 percent chance of QE3, accompanied by an extension of the low-rate guidance potentially, regardless of incoming data.”

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