The dollar fell against the majority of its 16 most-traded peers after U.S. employers added fewer workers than forecast in July, damping speculation the Federal Reserve will slow the pace of asset purchases anytime soon.
The dollar pared its first weekly gain in a month as the 162,000 increase in payrolls was the smallest in four months, Labor Department figures showed in Washington. The Fed said this week it will maintain its $85 billion of monthly bond purchases to spur growth, a move that tends to debase the currency. Mexico’s peso surged on speculation Fed stimulus would aid capital flows into the country.
“We have disappointment about the pace of payroll growth, and that is feeding into a softening dollar performance,” said Jens Nordvig, head of global foreign-exchange strategy at Nomura Holdings Inc., by phone from New York. “We need to see the growth momentum pick up a little in the third quarter in order for the Fed to be confident about their forecast being on track.”
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 other major currencies, dropped 0.6 percent to 1,028.74 at 5 p.m. in New York. It gained 0.6 percent this week after falling the previous three.
The U.S. tender fell 0.5 percent to $1.3276 per euro and declined 0.6 percent to 98.94 yen. Japan’s currency gained 0.1 percent to 131.34 per euro.
The Mexican peso gained 1.3 percent to 12.6625 per U.S. dollar after adding 1.5 percent, its biggest move in two weeks. The U.S. is Mexico’s largest trade partner. The erased a weekly loss.
Brazil’s real rose from a four-year low as the central bank intervened to support the currency’s gain after the U.S. payrolls report. The currency appreciated 0.7 percent to 2.2874 per U.S. dollar. The real closed yesterday at a level weaker than 2.3 per dollar for the first time since 2009.
The New Zealand dollar was the biggest loser among major currencies, falling 0.7 percent to 78.38 New Zealand cents per U.S. dollar, touching the lowest point in two weeks. The dollars of Canada and Australia, fellow commodities-exporting nations, also dropped.
The employment gain followed a revised 188,000 rise in June that was less than initially estimated. The median forecast of 93 economists surveyed by Bloomberg called for a 185,000 jobs gain. Workers spent fewer hours on the job and hourly earnings fell for the first time since October.
“The market had been positioned probably for a stronger number and there was a bit of a disappointment,” Aroop Chatterjee, a currency strategist at Barclays Plc, said by phone from New York. “The market’s view will be formed with data, and I think data remains reasonably strong to keep September tapering very much in play.”
The unemployment rate dropped to 7.4 percent from 7.6 percent, according to the Bloomberg survey median, versus a forecast drop to 7.5 percent.
Fed Chairman Ben S. Bernanke said June 19 after the Fed’s policy meeting that the central bank may start dialing back its bond-buying program this year and end it entirely in mid-2014 if the economy achieves sustainable growth. The Fed has been buying $40 billion of mortgage bonds and $45 billion of Treasuries to inject cash into the economy.
The economy has added an average of 201,000 jobs each month this year through June, Labor Department data show. Payrolls expanded in 2011 and 2012 by an average of 179,000 positions a month, the data show.
The Fed plans to hold its target interest rate near zero at least as long as unemployment remains above 6.5 percent and the outlook for inflation doesn’t exceed 2.5 percent. Asset purchases may continue in 2014 until unemployment declines to about 7 percent, Bernanke said in June.
The employment report “doesn’t necessarily change the view on when tapering will happen, but it reduces the urgency in the market because of the positioning,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA, said by phone from New York. “I would guess the market is no longer long dollar. It’s probably marginally short dollar, and that’s helped put that move higher in euro.” A long position is a bet an asset, in this case the U.S. dollar, will increase in value. A short position is a wager it will decrease.
Trading in over-the-counter foreign-exchange options totaled $33 billion, compared with $28 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 amounted to $8.3 billion, the largest share of trades at 25 percent. Options on the dollar-Chinese yuan rate totaled $5.4 billion, or 16 percent.
Dollar-yen options trading was 17 percent more than average for the past five Fridays at a similar time in the day, according to Bloomberg analysis. Dollar-yuan options trading was 206 percent more than the average.