Dollar Drops After U.S. Nonfarm Jobs Gains Trail Forecast

The dollar dropped from a four-month high after U.S. employers added fewer jobs than forecast last month, reducing speculation the Federal Reserve will move up the pace of interest-rate increases forecast for next year.

The dollar fell against the yen and euro as payrolls trailed estimates and the unemployment rate increased. An index of developing-nation currencies dropped to a four-month low as Argentina’s default hurt appetite for riskier assets. The pound weakened for a fourth day after U.K. manufacturing grew less than forecast. Traders scaled back odds the Fed will raise the its rate target to at least 0.5 percent by July 2015 to 58 percent from 65 percent yesterday, based on futures contracts.

“The disappointment in today’s jobs report is sufficient in allaying fears of a premature Fed hike,” Ashraf Laidi, chief executive officer of Intermarket Strategy Ltd., said in an e-mail. “But the three-month uptrend for the dollar against the euro remains intact.”

Laidi recommended buying the dollar against the Swiss franc and the euro, targeting a drop in the common currency to as low as $1.3230.

The Bloomberg Dollar Spot Index fell 0.1 percent to 1,020.69 as of 5 p.m. in New York after earlier rising 0.2 percent. It touched 1,023.42, the highest since March 20, and rose 0.7 percent on the week for a third five-day gain. The gauge climbed 1.9 percent in July to wipe out a 1.6 percent first-half decline.

The U.S. currency fell 0.3 percent to $1.3427 per euro to erase a weekly advance. The dollar dropped 0.2 percent to 102.61 yen after 10 days of gains, the longest streak since 2001. The euro rose 0.1 percent to 137.78 yen. The franc gained 0.3 percent to 90.59 centimes per dollar.

Emerging Losses

Indonesia’s rupiah dropped 1.9 percent to drag emerging-market currencies lower, with the Indian rupee declining 1 percent. The Hungarian forint led gainers, up 0.5 percent.

A gauge that tracks the performance of 20 emerging-market currencies versus the dollar fell 0.2 percent to 91.4816, the lowest level since March 26.

Argentina’s peso dropped for a 13th day after the government missed a July 30 payment deadline on $539 million of notes. President Cristina Fernandez de Kirchner denied the country defaulted and, though she’s open to further talks, she said defending the nation’s interests is her top priority.

The peso slid 0.3 percent in the official market to 8.2357 per dollar, extending the longest losing skid since a 43-day drop ended Jan. 14.

Sterling Drops

In Europe, sterling slid as U.K. manufacturing grew at the slowest pace in a year, Markit Economics said today. An industry index slipped to 55.4 from a revised 57.2 in June, the London-based data provider said. Analysts forecast a reading of 57.2 for July, from a previously reported 57.5 in June, according to the median estimate in a Bloomberg survey.

The pound fell 0.4 percent to $1.6821 after touching $1.6814, the lowest level since June 12. It has weakened 12 of the past 13 days.

Futures traders’ bets that the euro will decline against the U.S. dollar rose to the biggest since August 2012, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on an depreciation in the euro compared with those on a rise -- net shorts -- was 108,075 on July 29, compared with 88,823 a week earlier.

Summer ‘Tone’

The U.S. dollar erased gains as the 209,000 payrolls advance followed a 298,000 gain in June that was stronger than previously reported, figures from the Labor Department showed today in Washington. The median forecast in a Bloomberg survey of economists called for a 230,000 increase.

The jobless rate climbed to 6.2 percent from 6.1 percent in June as more people entered the labor force. Wages and hours were unchanged from June.

The participation rate, which indicates the share of working-age people in the labor force, increased to 62.9 percent from 62.8 percent a month earlier, which matched the lowest since March 1978.

“The market is reacting to the headline number, which came in lower than expectations, but we’re impressed by the upward revision of the prior month, and the improving participation rate,” said Michael Woolfolk, a global-markets strategist at Bank of New York Mellon in New York. “This week has really set the tone for the summer. Investors should look to sell the euro and the yen” against the dollar.

‘Pretty Inflated’

Policy makers are monitoring “significant underutilization of labor resources” and inflation as they curtail stimulatory bond purchases, according to a statement from the Federal Open Market Committee this week.

The Fed plans to keep interest rates near zero for a “considerable time” after ending its unprecedented program of bond buying, it said after meeting July 29-30. The central bank trimmed asset purchases to $25 billion this week and is on track to finish the program in October.

The dollar has gained 2.1 percent over the past month, the best performance of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The yen added 0.9 percent and the euro is little changed. New Zealand’s dollar dropped the most, 1.2 percent.

“The expectations going into the report were pretty inflated,” Mark McCormick, a foreign-exchange strategist at Credit Agricole SA in New York, said of the payrolls data. “The rally in the dollar got a little bit ahead of itself.”

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