Dollar Set for Biggest Weekly Loss Since 2009 Before Jobs Data

  • Report forecast to show January jobs growth at less than 200K
  • Odds of a Fed rate increase by Jan. 2017 drop below 50%

Will Dollar Domination Keep Hold on Global Markets?

The dollar is headed for its biggest weekly decline since 2009, and Friday’s payrolls report is unlikely to offer much in the way of redemption.

The U.S. currency has fallen against all of its Group-of-10 peers this week amid signs traders are starting to pull back from a policy divergence trade that proved a winner for much of the past year and a half. The tide is turning, with the odds of a quarter-point increase in Federal Reserve interest rates by January 2017 falling to less than 50 percent.

The chances are receding as the world’s largest economy shows it’s not immune to the turmoil stalking global markets. U.S. employers created fewer than 200,000 jobs last month for the first time since September, economists surveyed by Bloomberg predict before a government report.

“It’s not that the U.S. labor market is bad, but it’s just that if you’ve been improving for so long you can’t keep improving at the same level,” said Stuart Bennett, London-based head of G-10 currency strategy at Banco Santander SA. “It’s the same for the dollar. After rising so fast you can’t keep rising.”

The last time the Bloomberg Dollar Spot Index fell this much in a week was May 2009, when the Fed was still buying assets to spur growth.

The measure of the greenback versus 10 peers gained 0.1 percent Friday to 1,222.29 as of 7 a.m. New York time, leaving it down 2.4 percent this week. The U.S. currency was little changed at $1.1198 per euro and 116.84 yen.

More Easing?

The dollar is heading for weekly declines of more than 3 percent versus the euro and yen, even after European Central Bank President Mario Draghi and Bank of Japan Governor Haruhiko Kuroda signaled they’re ready to take further steps to expand the money supply in an attempt to boost their economies. That’s because their jurisdictions’ current-account surpluses make the currencies havens from volatile financial markets.

The projected 190,000 increase in U.S. January payrolls would be the smallest since 145,000 jobs were added in September. That was just a month after China’s devaluation of the yuan, which sparked a rout in stocks, oil and commodities.

Fed Vice Chair Stanley Fischer and fellow policy maker William C. Dudley have both pointed out this week that conditions have tightened in the U.S., potentially influencing the interest-rate path.

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