WORLD FOREX: Dollar Posts Large Gains After June Jobs Report
TORONTO (Dow Jones)--The dollar posted relatively large gains versus the euro and most other major currencies Thursday, after a weak U.S. June nonfarm payrolls report encouraged currency players to shy away from risk ahead of Friday's U.S. Independence Day holiday.
Against expectations of a further 350,000 decline in U.S. employment rolls, June nonfarm payrolls instead fell by 467,000 and the U.S. unemployment rate rose to a 26-year high at 9.5%, demonstrating the continuing frailty of the labor market and the economy as a whole.
From a broad financial-market perspective, the report "prompted a sizable shift in risk appetite," said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon, as riskier assets such as equities and commodities were sold heavily Thursday.
As such, said Woolfolk, the dollar's rally was largely a market-positioning move and "more indicative of players taking risk off the table ahead of the long holiday weekend, than any true recovery in the greenback itself."
The exception to Thursday's strong-dollar trend was the yen, which also rallied sharply. The yen benefitted more than the dollar on the move out of risk because it is more sensitive than the dollar to equities and long-end Treasury yields, both of which came down Thursday, said Tom Fitzpatrick, a currency strategist at Citigroup in New York.
Still, Thursday's big gains by the dollar and yen did nothing to break the recent pattern of mostly sideways trading in major currency pairs, as markets continue to suffer from a lack of overall direction and increasing occasional pockets of summertime illiquidity.
"Clearly, uncertainty has been the major theme over the past couple of weeks, which has served to stop the slide in the dollar," said senior foreign-exchange trader Brendan McGrath of currency services firm Custom House in Victoria, British Columbia.
That could change on more convincing evidence of economic recovery, McGrath suggested, although the dollar can still be expected to continue finding support from bad economic news, "as investors still remain content to park their money in U.S. Treasury bonds any time there is uncertainty in the market."
Midafternoon Thursday, the euro was at $1.4025 from $1.4147 late Wednesday. The dollar was at Y95.85 from Y96.67, according to EBS. The euro was at Y134.45 from Y136.76. The U.K. pound was at $1.6402 from $1.6475, and the U.S. dollar was at CHF1.0822 from CHF1.0748.
Overnight, China's dismissal of a report that it was seeking to debate a new international reserve currency at next week's Group of Eight meeting also lent some support to the dollar. China's vice foreign minister, He Yafei, said he hadn't heard of any such request. He said he hoped the dollar will be stable because of its role as the main reserve currency.
The euro also strengthened against the Swiss franc after Swiss National Bank directorate member Thomas Jordan said the central bank was ready to intervene in currency markets.
Jordan didn't indicate what exchange rate level would trigger intervention, nor did he give details regarding the amount of money that would be involved. However, its unconfirmed currency interventions over the past few months have occurred between CHF1.50 and CHF1.52 against the euro.
Last week, the SNB bought around EUR3 billion of foreign currencies, according to traders, to curb the Swiss franc's rise.
Elsewhere, the European Central Bank as expected left its key interest rate unchanged at 1.00% and offered only scant revisions to its outlook for inflation and eurozone economic prospects.
Sweden's central bank, however, surprised markets Thursday by halving its key interest rate for the third consecutive time to a new record low of 0.25% due to the continued frailty of the Swedish economy.