Dollar Drops Most in 3 Weeks on Employment Report

Updated on

The dollar dropped the most in three weeks after employment rose less than forecast in October amid a Federal Reserve debate on when to increase interest rates from a record low.

The Bloomberg Dollar Spot Index trimmed a third week of gains as Fed Chair Janet Yellen said central banks need to “employ all available tools” to address low growth and below-target inflation. She spoke in Paris a day after European Central Bank President Mario Draghi deepened his commitment to stimulus, helping send the euro to a third weekly drop. Canada’s dollar jumped after an unexpected decrease in the jobless rate. Australia’s dollar rallied.

“It was a miss from expectations,” Lennon Sweeting, a San Francisco-based dealer at the broker and payment provider USForex Inc., said in a telephone interview. “The market was anticipating a higher reading but, from our perspective here, this is just a bump in the road and dollar strength is still intact.”

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, lost 0.6 percent to 1,091.46 as of 5 p.m. in New York, the biggest decline since Oct. 15. It still rose 1 percent on the week.

The U.S. currency fell 0.5 percent to 114.60 yen after touching 115.59, the strongest level since November 2007. The euro rose 0.7 percent to $1.2455, paring its slide this week to 0.6 percent. The yen slipped 0.1 percent to 142.73 per euro.

Loonie, Aussie

Canada’s currency gained as employment rose by 43,100 after a jump of 74,100 the prior month and the jobless rate fell to 6.5 percent from 6.8 percent, Statistics Canada said today in Ottawa. Both results exceeded all economist predictions in a Bloomberg News survey that called for unemployment to rise to 6.9 percent on 5,000 job losses.

The loonie added 0.8 percent to C$1.1329 per U.S. dollar.

The Australian dollar led advances among the dollar’s 31 top rivals as expanded stimulus from the Bank of Japan may encourage capital flows into the South Pacific nation from investors seeking higher yields, the Reserve Bank of Australia said today in its quarterly monetary policy statement. That “could hold the Australian dollar at a higher level than real economic fundamentals would imply,” it said.

The BOJ announced last week it would expand its monetary base by 80 trillion yen ($697 billion) a year, up from 60 trillion yen to 70 trillion yen.

The Aussie added 0.9 percent to 86.37 U.S. cents after earlier slumping to 85.41, the weakest level since July 2010.

‘Unconventional Policies’

“Central banks need to be prepared to employ all available tools, including unconventional policies, to support economic growth and reach their inflation targets,” Yellen said in the text to be delivered today at a Bank of France event.

The Fed chair spoke as ECB policy makers appeared divided over how far they should go in pursuing bond purchases aimed at staving off deflation. Draghi said he intends to boost the bank’s balance sheet back toward March 2012 levels, or about 1 trillion euros ($1.24 trillion) larger than today. Draghi has faced push-back from some ECB members over bond purchases.

“Given the slow and unsteady nature of the recovery, supportive policy remains necessary,” Yellen said.

Investor Bets

Hedge funds and other large speculators increased bets on a decline in the euro against the dollar to the most since June 2012. The difference in the number of wagers on a drop compared with those on a gain -- so-called net shorts -- was 179,021 on Nov. 4, from 165,707 a week earlier, according to data from the Washington-based Commodity Futures Trading Commission. Investors boosted bets on the dollar versus eight of its major peers to a record 366,737, the data show.

In contrast to the ECB, the U.S. central bank is considering the timing of its first rate increase since 2006 after maintaining borrowing costs in a range of zero to 0.25 percent since 2008 to support the economy

The Fed cited signs of improvement in the labor market as it ended its program of stimulatory asset purchases last month. Policy makers pointed to “solid” job gains and said “underutilization of labor resources is gradually diminishing.”

The 214,000 increase in U.S. nonfarm employment reported by the Labor Department today followed a 256,000 advance the prior month that was more than initially estimated. The median forecast in a Bloomberg survey of 100 economists called for a 235,000 advance.

‘Not Terrible’

“The number by any objective sense is not terrible -- it maybe was a bit weaker that what was expected,” Steven Englander, the New York-based head of Group of 10 currency strategy at Citigroup Inc., said of the jobs report. “It’s a market-friendly number in the sense that it suggests that growth is very decent but that the Fed is not under the gun to start raising rates aggressively.”

The jobless rate declined to 5.8 percent, versus a survey projection that it would hold at 5.9 percent. The share of the population with jobs rose to 59.2 percent in October, the highest since July 2009, from 59 percent the prior month.

The dollar has gained the 2.4 percent in the past month, the best performance among 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen paced decliners with a 4.1 percent drop, while the euro added 0.5 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE