The dollar had its first five-day loss against the euro in three weeks after an unexpected drop in the U.S. unemployment rate prompted investors to spur the safety of the greenback and seek higher-yielding assets.
The U.S. currency fell to its weakest level in more than two weeks versus the euro after the jobless rate slid to the lowest since January 2009. The greenback pared losses versus the shared currency late today as U.S. stocks reversed gains. The Canadian dollar rose versus most major currencies as employment climbed in the nation.
“It’s certainly a positive development to see the unemployment rate come down,” Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said in a telephone interview. “I wouldn’t say there’s massive justification for risk-on. You would expect to see a little bit of a bounce, like we did see, and then some paring heading into the weekend.”
The greenback fell 1.4 percent against the euro this week. It declined 0.2 percent to $1.3045 per euro at 5 p.m. in New York after falling earlier to $1.3072, the weakest level since Sept. 19. The dollar appreciated 0.2 percent to 78.67 yen and reached 78.87 yen, exceeding the 100-day moving average of 78.83. The euro advanced 0.4 percent to 102.57 yen.
The shared currency has closed above $1.30 only once in the past 21 weeks, reaching $1.3120 in the five days ended Sept. 14.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners including the euro and yen, was little changed after dropping as much as 0.3 percent.
The Standard & Poor’s 500 Index was little changed after earlier gaining as much as 0.7 percent.
Implied volatility, which signals the expected pace of currency swings, reached an almost five-year low. It touched 7.5 percent, the least since Oct. 16, 2007, a JPMorgan Chase & Co. index for Group-of-Seven currencies showed. Lower volatility makes investments in currencies with higher key lending rates more attractive because the risk in such trades is that market moves will erase profit. The five-year average is 12.4 percent.
The Canadian dollar rallied as domestic employers added 52,100 jobs last month, five times more than a Bloomberg News survey forecast, adding to bets Bank of Canada Governor Mark Carney will raise the benchmark interest rate. The currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, rose 0.2 percent to 97.86 cents per U.S. dollar after climbing earlier as much as 0.7 percent.
“The data was a significant upside surprise,” Mazen Issa, Canada macro strategist at Toronto-Dominion Bank’s TD Securities unit, said in a phone interview. “The Bank of Canada will be concerned with how growth will evolve in this quarter and this year, but will likely continue to maintain its hawkish bias to take the overnight rate higher.”
The U.S. is Canada’s largest trading partner.
The South African rand reached its weakest level versus the greenback since April 2009 as strikes spread across the nation’s mining and transport industries. The currency tumbled as much as 3 percent to 8.7793 per dollar. It lost 3.2 percent to 11.4460 per euro and touched 11.5446, the weakest since November 2009.
The yen advanced earlier against the euro for the first time since Sept. 26 after the Bank of Japan held off from more monetary easing after adding stimulus last month, preserving its policy firepower. The Japanese currency rose as much as 0.3 percent before reversing gains after the U.S. jobs report and falling for a seventh day, the longest stretch since February.
The euro has gained 1.6 percent this week, the best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar was little changed, while the yen dropped 1.1 percent.
The Dollar Index slid to what was then its lowest level in more than three months on Sept. 7, 80.151, after the last U.S. employment report showed that payrolls expanded by fewer jobs than forecast.
Six days later, after their September meeting, Federal Reserve policy makers said the central bank would buy $40 billion a month of mortgage bonds in a third round of quantitative easing until they see what Chairman Ben S. Bernanke described as an “ongoing, sustained improvement in the labor market.” They also said the federal-funds rate will probably stay at virtually zero at least through mid-2015.
The Fed previously purchased $2.3 trillion of assets in two rounds of easing to spur economic growth.
“The fact that the unemployment rate is moving lower will have an impact on the length and size of this new QE program from the Fed,” Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York, said in a telephone interview. “The unemployment rate moving lower, faster is going to reduce expectations that the Fed is going to need to print more dollars.”
The jobless rate fell to 7.8 percent last month from 8.1 percent in August, Labor Department data showed today in Washington. The economy added 114,000 workers, almost matching a Bloomberg News survey estimate of 115,000, after a revised 142,000 gain in August that was more than initially estimated, the data showed.
Bernanke, in a speech in August, called the U.S. jobs picture a “grave concern.” The economy has recovered only about 4.1 million of the 8.8 million jobs lost in the wake of the 18-month recession that ended in June 2009.
Fed policy makers said at their Sept. 12-13 meeting they saw manageable risks in the new round of bond buying, according to minutes released yesterday.
“Most participants thought these risks could be managed since the committee could make adjustments to its purchases, as needed, in response to economic developments or to changes in its assessment of their efficacy and costs,” the meeting minutes showed.
The Fed has signaled it’s moving toward linking its outlook for near-zero interest rates to specific economic conditions such as a drop in unemployment.
Policy makers such as Chicago Fed President Charles Evans have said the central bank should promise to keep rates low until the unemployment rate falls to 7 percent, as long as inflation doesn’t breach 3 percent. Participants at the Fed’s meeting last month said such a strategy would give the central bank more flexibility, while saying it would be “challenging” to agree on specific thresholds, the minutes show.
A link between the Fed’s outlook for near-zero interest rates and economic conditions would represent a shift from the central bank’s policy to tying low rates to the calendar.