MW: Dollar up; June jobs reinforce taper expectations
Euro weakest versus dollar since May, sterling flirts with March low
By William L. Watts and Barbara Kollmeyer, MarketWatch
NEW YORK (MarketWatch) — The dollar extended gains versus major rivals after stronger-than-expected June U.S. jobs data reinforced expectations the Federal Reserve will move sooner rather than later to begin slowing the flow of monetary stimulus to the economy.
The euro EURUSD -0.58% changed hands at $1.2816 in recent trade, after dropping to an intraday low at $1.2806 — its lowest level since May — after the Labor Department said the economy added 195,000 jobs in June. Economists had forecast a rise of 155,000. The unemployment rate was unchanged at 7.6%. The euro traded late Thursday around $1.2916.
U.S. Treasurys tumbled after the data, sending yields higher, while U.S. stock index futures extended strong gains to point to a sharply higher open for Wall Street.
“We would appear to be one step closer to the Fed tapering its bond purchases, which we still see as being announced at the September FOMC meeting,” said John Ryding, economist at RDQ Economics, in a note.
As the Fed remains on a path toward scaling back the degree of stimulus it provides the economy, the European Central Bank and the Bank of England on Thursday both took steps to verbally signal they have no intention of tightening policy any time soon. The Bank of Japan also remains firmly committed to aggressive monetary stimulus aimed at reflating the country’s long-stagnant economy.
The U.S dollar USDJPY +0.69% surged from around 100.11 yen ahead of the data to trade at ¥101.05 in recent action, compared with ¥99.80 seen late Thursday.
Sterling GBPUSD -1.14% dropped to $1.4895, hitting its lowest level since March. The pound traded at $1.5071 Thursday when it slid more than 1% against the greenback.
The ICE dollar index DXY +0.73% , which measures the U.S. unit against six other major currencies, traded at 83.969, up from 83.291 late Thursday in North America. The WSJ Dollar Index XX:BUXX +0.69% , a rival gauge with a slightly wider comparison basket, rose to 76.19 from 75.56.
Word from the European Central Bank and the Bank of England that rate hikes aren’t on tap in the near future came ahead of the U.S. jobs data, which the Fed is monitoring as it decides when it will slow the pace of its bond purchases.
Fed Chairman Ben Bernanke said last month that bond purchases, currently at $85 billion a month, may be tapered down this year if the economy improves in line with the central bank’s projections. The Fed is looking for the unemployment rate to fall toward 6.5% by next year.
The lack of a drop in the June unemployment rate did little to squelch expectations the Fed will move to begin scaling back stimulus. The underlying pace of payrolls growth should allow the rate to resume its gradual downward march, said Annalisa Piazza, economist at Newedge.
That said, there are still “some doubts on the underlying strength of the U.S. economy,” she said in a note. “We rule out that today’s NFP [nonfarm payrolls] data itself will convince FOMC members that the tapering of the current QE program will be needed sooner than Q3 13.”
Meanwhile, the Australian dollar AUDUSD -0.44% gave up a modest rebound to slip to 90.99 U.S. cents from 91.09 U.S. cents on Thursday. The Aussie this week fell to its lowest level against the greenback since September 2010 on indication the Reserve Bank of Australia may resume interest-rate cuts.
“With [Australian] policy makers content to hover the ax over interest rates, and anxiety intensifying around Chinese growth prospects, short-term downward pressure on the Aussie looks set to continue should we receive a strong employment reading from the U.S.,” wrote CMC Markets analyst Niall King.
“A weaker payroll on the other hand could jolt the ‘oversold’ camp into action, and with it, a bounce in the Aussie,” King wrote to clients.
William L. Watts is MarketWatch's senior markets writer, based in New York. Follow him on Twitter @wlwatts.
Barbara Kollmeyer is an editor for MarketWatch in Madrid. Follow her on Twitter @MWBarbaraKollmeyer.
