Dollar Tumbles Most Since December as Jobs Data Dim Fed Outlook

  • U.S. employment growth is slowest in almost six years
  • Reduced chances for U.S. rate hike damps divergence trade

The dollar plunged the most since December against the euro after U.S. jobs growth trailed forecasts, weakening the case for the Federal Reserve to raise interest rates as early as this month.

The dollar’s tumble was the biggest post-payrolls move in at least a year, according to Bloomberg data. The dollar dropped 1.7 percent to $1.1342 per euro as of 1:56 p.m. New York time, the biggest decline since Dec. 3. It lost 2.1 percent to 106.62 yen. The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, fell 1.4 percent.

The U.S. currency rose 3.7 percent last month, paring losses this year, after policy makers including Chair Janet Yellen said higher rates in the coming months look appropriate. The employment report throws cold water on prospects for greenback strength based on policy divergence between a tightening Fed while central banks in Europe and Asia add to stimulus.

"The dollar correction higher is over for now,” said Georgette Boele, a currency strategist at ABN Amro Bank NV in Amsterdam. “A wave of weakness is likely. The weak report is heavily weighing on the dollar."

New Zealand’s dollar, South Africa’s rand and the Sweden’s krona each gained more than 2 percent versus the greenback.

Dollar Reversal

"For the next two weeks into the June meeting, there’s a possibility the currency market will price out the hikes to just one this year," said Minh Trang, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California. Fed officials next meet June 14-15.

Nonfarm payrolls climbed 38,000 in May, the smallest number of workers in almost six years, and less than the most pessimistic forecast in a Bloomberg survey. The jobless rate dropped to 4.7 percent, the lowest since November 2007, as Americans left the labor force.

Hedge funds and money managers turned net bullish on the dollar versus eight major peers for the first time in six weeks in period ended May 24, according to the Commodity Futures Trading Commission. Bets that the currency will rise outnumbered bearish positions by 67,430 contracts, compared with net bearish positions of 10,653 the previous week.

Strategists still forecast a stronger dollar for 2016. The U.S. currency is projected to strengthen to $1.10 per euro and 115 yen by the end of the year, according to Bloomberg surveys of analysts.

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