Dollar Bulls Dealt Setback as Job Gains Fail to Lift Fed Outlook

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Dollar bulls are taking little comfort in the budding recovery in the U.S. employment market.

The U.S. currency fell against most of its major peers after the Labor Department said payrolls rebounded in April following an even bigger setback a month earlier than previously estimated. That’s pushed out trader expectations for when the Federal Reserve will begin raising interest rates, which up until the middle of April had underpinned a nine-month rally in the greenback.

“It really hasn’t been the barn burner that the dollar bulls were hoping for,” Bipan Rai, director of foreign-exchange strategy at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, said by phone from Toronto. “There is scope for the dollar to remain on the defensive.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, fell 0.1 percent to 1,164.21 as of 4 p.m. in New York. It has gained 16 percent in the past year.

The euro fell 0.6 percent to $1.1199, leaving it unchanged this week. The dollar was little changed at 119.76 yen.

Investors sold the 19-nation currency, using the euro to fund purchases of riskier assets such as European stocks and bonds, on speculation the Fed will wait longer before boosting borrowing costs.

Nonfarm Payrolls

“It’s all risk appetite,” John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Hellerup, Denmark, said by e-mail. “Risk goes up, the euro goes down.”

The 223,000 increase in U.S. employment followed an 85,000 gain in March that was the smallest since June 2012, figures from the Labor Department showed. The jobless rate fell to the lowest since May 2008 as more Americans entered the labor force and found work. Average hourly earnings climbed less than forecast.

“We’re seeing some good job gains, it’s not bad, but the market has increased focus on wages and inflation down the road,” said Mike Moran, a senior strategist in New York at Standard Chartered Plc. “It’s a bit of a reality check in terms of whether wage inflation is finally going to emerge. We could see a little more consolidation in the dollar in the short run.”

The U.S. central bank is weighing economic data to determine the timing of its first interest-rate hike since 2006. Bond yields “could see a sharp jump” when liftoff occurs, Fed chair Janet Yellen said May 6.

Rate Speculation

The odds of a Fed liftoff in December are 52 percent, according to CME Group Inc. calculations of fed funds futures prices. That’s down from 62 percent earlier Friday. In Eurodollar futures, which traders also used to speculate on the path of Fed policy, the December rate fell to 0.40 percent, from 0.63 percent before the data.

Hedge funds and money managers cut bullish bets on the dollar for a sixth week, according to data from the Commodity Futures Trading Commission. Net-long positions fell to 291,243 contracts in the week to May 5, the data show. That’s the lowest since October and is down from 297,577 a week earlier.

The reduction in net bullish bets coincided with an 0.2 percent drop in the dollar.

“When something moves so aggressively in one direction, it’s not unusual to get some consolidation,” said Gary Pzegeo, the Boston-based head of fixed income at Atlantic Trust Private Wealth Management, which manages $26.2 billion.

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