The dollar dropped against all but one peer after U.S. employers added the fewest jobs in two years in December, reducing speculation the Federal Reserve will wind down the bond-buying it uses to support economic growth.
The greenback fell from almost the highest level in four months against a basket of developed-nation counterparts before the central bank meets this month to decide the course of its quantitative-easing program, which may debase the currency by printing greenbacks. A basket of emerging-market currencies rallied and Treasury yields tumbled. Poland’s zloty rose the most in four months versus the euro.
“You saw the dollar fall against most currencies,” Robert Lynch, a currency strategist at HSBC Holdings Plc in New York, said in a phone interview. A private employment report on Jan. 8 “underscored the market’s expectations that the data generally would be good, and it wasn’t. Following that, that you had some reversal of the move of the past week or so.”
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major counterparts, decreased 0.4 percent to 1,023.77 at 5 p.m. New York time, after earlier rising 0.2 percent to 1,030.38. Yesterday it touched 1,030.42, highest since Sept. 9.
The dollar fell 0.6 percent to 104.18 yen after rising to 105.44 on Jan. 2, the strongest since October 2008. The U.S. currency weakened 0.5 percent to $1.3670 per euro. The yen added 0.2 percent to 142.39 per euro.
The benchmark 10-year note yield fell 11 basis points, or 0.11 percentage point, to 2.86 percent. The two-year yield dropped six basis points to 0.37 percent.
An equally weighted basket of the so-called BRICS emerging-market currencies, consisting of Brazil, Russia, India, China and South Africa, jumped by the most since Dec. 23 to 95.60. The carry-trade gauge has declined from a high last year of 101.5 in May.
A carry trade is a strategy in which an investor borrows in a currency with low interest rates to fund purchases of higher-yielding assets.
South Africa’s rand gained 1.4 percent to 10.6435 per U.S. dollar after yesterday touching 10.8353, lowest since October 2008. Brazil’s real jumped 1.4 percent to 2.3584.
“Massive miss on the top-line number,” said Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut. The data “should be dollar negative and emerging-markets positive.”
The pound fell against the euro a second day after industrial and manufacturing production unexpectedly stagnated and construction output dropped.
“The market is long of sterling and has pushed it lower on the back this data,” said Gavin Friend, a foreign-exchange strategist at National Australia Bank in London. A long position is a bet an asset price will rise. “There’s enough momentum in the U.K. economy and a danger of over-interpreting what this number means.”
The U.K. currency depreciated 0.5 percent to 82.94 pence per euro. It traded at $1.6483.
Poland’s zloty appreciated 0.7 percent to 4.1489 versus the euro, the biggest gain since Sept. 18, as the U.S. jobs report renewed speculation of unabated monetary policy that boosts assets prices and liquidity. The country will meet 50 percent of its 2014 borrowing needs by the end of the month, according to Finance Minister Mateusz Szczurek.
The yen gained for a second week against the dollar even as Goldman Sachs Group Inc. turned more bearish on the currency. The bank now predicts the yen will slide to 110 per dollar in 12 months, versus an earlier estimate of 107. Rate differentials are likely to increase as other central banks start to raise interest rates before the Bank of Japan, it said in a report yesterday.
The BOJ maintained a pledge to expand the nation’s monetary base by an annual 60 trillion yen ($574 billion) to 70 trillion yen at a meeting last month. Policy makers doubled monthly bond purchases in April to more than 7 trillion yen to end deflation.
“Dollar-yen is probably the most vulnerable because that’s where dollar longs are heaviest,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA, said by phone from New York.
Net-short positions in Japan’s currency versus the dollar increased to the most since 2007 on Dec. 24, data from the Washington-based Commodity Futures Trading Commission show. The number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain increased to 143,822 contracts. They fell to 128,868 on Jan. 7.
The dollar dropped as December payrolls increased by 74,000, versus the median forecast in a Bloomberg News survey for a 197,000 advance, and the unemployment rate fell to 6.7 percent. Jobs growth was the slowest since January 2011 and the gain was less than the most pessimistic projection in a Bloomberg survey. It followed a revised 241,000 advance the prior month, Labor Department figures showed.
The unemployment rate declined to the lowest since October 2008 as more people left the labor force. It was at 7 percent in November.
This followed a private report on Jan. 8 that showed companies hired 238,000 workers in December, the biggest gain since November 2012, according to ADP Research Institute in Roseland, New Jersey.
“The basic themes the market started the year with, related to solid U.S. growth inclusive of bond normalization and selective USD strength, are likely to stand the test of time,” Alan Ruskin, the New York-based global head of Group of 10 foreign-exchange at Deutsche Bank AG, the world’s largest currency trader, wrote in a client note. “This number will ultimately be seen as providing better entry levels for these core views, but this is obviously going to be a bumpy ride.”
Fed policy makers, who next meet Jan. 28-29, decided to cut monthly purchases to $75 billion from $85 billion at a gathering last month, citing improvement in the labor market. Minutes of the central bank’s last meeting released Jan. 8 showed officials saw diminishing economic benefits from bond-buying and expressed concern about risks to financial stability.
The Federal Open Market Committee will trim buying in $10 billion increments over the next seven meetings before ending them in December, according to the median forecast in a Bloomberg News survey on Dec. 19.