Dollar Falls After U.S. Wages Unexpectedly Decline; Loonie Drops

The dollar declined against most major counterparts after an unexpected drop in U.S. wages added to speculation the Federal Reserve won’t be in any hurry to raise interest rates.

A gauge of the U.S. dollar slid from the highest in a decade as hourly earnings for all employees dropped by 0.2 percent in December, the biggest since comparable records began in 2006, a Labor Department report showed. Traders increased bullish bets on the U.S. currency to a record high this week. The Russian ruble, Norwegian krone and Canadian dollar fell as Brent crude fell to an almost six-year low. Brazil’s real added to the week’s best performance among major currencies.

“We had the strong quantity of jobs, but the quality was the part that suffered -- that really surprising drop in wages,” Matt Weller, an analyst at Gain Capital Holdings Inc.’s in Grand Rapids, Michigan, said by phone. Slowing inflation in the U.S., combined with concern that Europe and Japan will struggle to fight deflation, “will definitely cause the Fed to tap the brakes.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, fell 0.6 percent to 1,141.13 as of 5 p.m. in New York. It closed yesterday at 1,147.54, the highest in data going back to 2004.

The euro gained 0.4 percent to $1.1842 after tumbling yesterday to $1.1754, the weakest since December 2005. It still dropped 1.3 percent on the week. The yen rose 1 percent to 118.50 per dollar, pushing its weekly gain to 1.7 percent. Japan’s currency increased 0.6 percent to 140.32 per euro.

‘Dollar Consolidation’

“If euro-dollar closes significantly above $1.18 and dollar-yen under 119, we might be in for some further U.S. dollar consolidation,” John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Hellerup, Denmark, said by e-mail. “That earnings number is desperately bad -- it could encourage the view that the Fed sits on its hands.”

Brent, the benchmark for more than half of the world’s crude, declined to $48.90 a barrel, the least since April 2009, pressuring the currencies of oil-producing nations.

The ruble slipped 2.1 percent to 61.55 per dollar, while the krone lost 0.4 percent to 7.6541 per dollar.

Canada’s dollar slid also as the nation’s employment unexpectedly shrank last month, for a second monthly decline. The loonie depreciated 0.3 percent to C$1.1867 per U.S. dollar. It touched C$1.1890, the weakest since May 2009.

Brazil’s real gained for the fourth day as the drop in U.S. wages supported speculation that the Fed will keep borrowing costs low. The currency rose 1.1 percent to 2.6329 per dollar for a weekly gain of 2.3 percent, the biggest since November.

‘No Rush’

The dollar slid as U.S. jobs data revealed a mixed picture of the labor market. While American employers hired 252,000 workers in December, more than the 240,000 median forecast of 99 analysts surveyed by Bloomberg News, and the unemployment rate dropped to a 6 1/2-year low, wages slumped.

Average hourly earnings fell to $24.57, 0.2 percent lower, while a 0.4 percent gain in November was revised down to 0.2 percent.

“The report didn’t give enough reason to add to long dollar positions at these levels,” Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA, said of bets the buck will rise. “It means labor-market slack is being eliminated but wages are moderate, which means they can wait and are in no rush to hike rates.”

Rate Increase

While the Fed has urged patience on rate increases, the central bank reiterated that monetary policy depends on data and noted improving labor-market conditions in minutes from its latest meeting published Jan. 7.

The central bank has held rates near zero since 2008 to support the economy. Futures contracts show about 50 percent odds the central bank will raise the target for its benchmark to at least 0.5 percent by September, from 57 percent yesterday.

Hedge funds and other large speculators increased wagers betting on the greenback’s strength versus eight of its major peers to 431,961 in the week through Jan. 6, the most in data going back to 2003, according to the Washington-based Commodity Futures Trading Commission. So-called net longs totaled 404,766 a week earlier.

Goldman Sachs Group Inc. brought forward its forecast for the euro to fall to parity with the dollar by a year to 2016, joining a minority of strategists predicting a 15 percent drop in the next two years.

The euro posted a fourth weekly decline, the longest stretch since September, as industrial output declined in German, France and Finland.

This came a day after European Central Bank President Mario Draghi said further stimulus measures may include sovereign-bond purchases. ECB staff presented policy makers with models for buying as much as 500 billion euros ($591 billion) of investment-grade assets, according to a person who attended a meeting of the Governing Council.

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