Dollar Gyrates as Jobs Report Gives Fed Complex Economic Message

U.S. Employers Add 287,000 Jobs in June Beating Estimates
  • Employment gain tops forecast while wages trail projections
  • U.S. currency has weakened in 2016 after three-year rally

The dollar swung between gains and losses after a report showed U.S. June jobs growth exceeded forecasts while the unemployment rate moved up and wage increases slowed.

The U.S. currency posted a weekly advance versus the euro on speculation the 287,000 increase in jobs last month gives the Federal Reserve added scope to raise interest rates. Futures repriced, signaling that traders see a 21 percent probability the central bank will raise interest rates by year-end, up from 12 percent Thursday, as the U.S. economy appears resilient in the midst of global growth concerns.

“What you’re seeing is the euphoria settling down after the large print regarding the jobs numbers," said Minh Trang, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California. "Even though the 287,000 number today is pretty strong, it really isn’t if you spread it over two months.”

The greenback gained 0.8 percent this week to $1.1051 per euro as of 5 p.m. in New York. On Friday, it rose as much as 0.6 percent and weakened as much as 0.5 percent. The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, fell 0.3 percent Friday, paring a weekly gain of 0.3 percent.

A gauge of the U.S. currency has slumped more than 3.5 percent this year, falling alongside the odds of a Fed rate increase. After the central bank kept borrowing costs unchanged last month, Fed Chair Janet Yellen cited the risks from the U.K. vote to leave the European Union, dimming the relative allure of the U.S. currency.

The June jobs gain followed a revised 11,000 increase in May. The jobless rate rose to 4.9 percent as more people entered the labor force. Wages advanced 0.1 percent, compared with a forecast for a 0.2 percent advance.

“This is dollar-supportive, if not wildly so,” said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Hellerup, Denmark. “The market is cautious in putting too much into a single data point.”

The greenback continues to attract demand demand from global investors reaching for yield in U.S. assets. Treasury 10-year notes yield more than the comparable sovereign debt of 17 developed countries, according to Bloomberg data.

After raising its target rate in December, minutes to the Fed’s June 14-15 meeting, released July 6, showed the Federal Open Market Committee “generally agreed” it needed to see more data before contemplating another hike.

"The pessimism about the Fed being out for the balance of the year was probably overstated," said Bill Northey, chief investment officer in Helena, Montana, at U.S. Bank private client group, which oversees $133 billion in assets. "We can get back to the process of being data-dependent."

Hedge funds and money managers cut net-bullish positions on the dollar versus eight major peers last week, according to the Commodity Futures Trading Commission. Bets that the currency will rise outnumbered bearish wagers by 81,952 contracts in the week to July 5, compared with 96,184 the previous week.

The U.S. currency is projected to strengthen to $1.08 per euro and 105 yen by the end of the year, according to Bloomberg surveys of analysts.

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