Dollar Rises as Traders Look Through Jobs Report to Rate Outlook

Analyzing the Data Behind the April Jobs Report
  • Currency traders shrug off mixed labor-market report
  • Hedge funds have boosted bearish positions on greenback

The dollar advanced, posting its biggest weekly gain since November, as traders concluded a disappointing jobs report won’t alter the Federal Reserve’s path to higher interest rates.

The currency erased losses to climb versus most major peers after the release showed employers added fewer workers than forecast in April, even as average hourly earnings rose. Traders quickly pushed out expectations for rate increases, only to unwind some of those bets hours later, futures contracts show.

“There will be two rate hikes this year, it may just be a later start,” said William Northey, who helps oversee $125 billion as chief investment officer in Helena, Montana for U.S. Bank’s private client group. “While this was a bit of a soft report, I think the underlying trend is really the important factor. And that trend has been healthy,” he said, adding “we expect the U.S. dollar will move higher.”

The dollar fell for a third straight month in April, the longest stretch since before it embarked on a 20 percent rally in July 2014, on speculation the Fed will take a slower path to raising rates as it factors in headwinds from slowing global economic growth. Its rebound this week comes as hedge funds and other large speculators boosted wagers on dollar weakness after turning bearish on the currency for the first time since 2014 last month, and a gauge of the U.S. currency touched a one-year low.

The Bloomberg Dollar Spot Index, which tracks the currency versus 10 peers, rose 0.1 percent as of 5 p.m. in New York, advancing for a fourth day. The currency slipped 0.1 percent to 107.12 yen and was little changed at $1.1404 per euro.

Jobs Watch

Labor Department data showed nonfarm payrolls increased by 160,000 last month, versus estimates for a gain of 200,000 in a Bloomberg survey of economists.

The greenback slumped as much as 0.7 percent on Oct. 2 when payrolls fell 58,000 short of forecasts as traders scaled back expectations for Fed rates. The Fed lifted its target rate by 0.25 percentage point in December after holding it near zero for seven years, and policy makers have forecast two more increases this year.

“It’s a pretty weak report,” said Lee Ferridge, the Boston-based head of macro strategy for North America at State Street Global Markets. “We’ll see the dollar stay under pressure against euro and yen. But it’s not going to be a dramatic move, it’s going to be more of a grind.”

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