Dollar slammed as hopes are dashed on jobs

The greenback dropped like a stone after Friday’s non-farm payroll report failed to live up to expectations of a big employment gain. The unemployment rate rose to 9.8% while employers added a far fewer total of just 39,000 positions while forecasters were hoping for job growth of 150,000 after a similar reading last week. The dollar lost ground against the Swiss franc and Japanese yen where it had surged throughout the week on expansion hopes.

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U.S. Dollar – The worse than hoped for report this morning comes at the end of a week when investors took to riskier propositions like a child in a candy store, driving prices for equities and commodities surging. The dollar advanced earlier in the week as fears over European economies were revived and as stronger economic data surprised investors. But the dollar index this morning fell sharply, taking out last Friday’s session low. So far in today’s session the index has shed 0.75% to stand at 79.58.

Euro – The payroll data from Washington further fuelled a recovery in the single European currency driving it to a session peak so far at $1.3344 according to Interactive Brokers data and to an eight-day high. Germany’s Bundesbank in today’s biannual report raised its growth forecasts for the domestic economy for this year and next. It now expects GDP growth for 2010 of 3.6% and of 2.0% for next year. It predicts 1.5% in 2012. Germany’s Finance Minister Wolfgang Schaeuble also downplayed investors’ fears over a potential euro calamity and towed the same line as ECB President Trichet. Mr. Schaeuble stated to Les Echos newspaper that he remains convinced that they “have all the means to keep the euro area as a stable world currency for the future.” In short he said that investors’ concerns over the situation surrounding the peripheral Eurozone nations don’t necessarily match the reality.

British pound – A PMI services report showed continued expansion in the mainstay of the British economy during November albeit at a marginally lower pace. The pound extended gains after the U.S. payroll report pulled the rug from beneath the dollar and has touched $1.5706 shortly after.

Japanese yen – The yen surged in the immediate aftermath of the Washington release earlier. The ferocity of the move would indicate stop-loss orders were triggered inciting further buying of the yen or sales of the dollar. Ahead of the release the dollar bought ¥83.78 but within minutes dropped to ¥82.53 as investors rued their earlier in the week decision to warrant lower room for safety havens within their portfolios.

Aussie dollar – Bad news for the U.S. unit is good news for the Aussie today is investors ditch the greenback. The lackluster employment report from Washington is insufficient to crater risk appetite altogether but is weak enough to leave risk-takers sprinting for the finish line with a sudden cramp. The view has suddenly reverted to a mediocre American recovery rather than the rosier view that was taking shape earlier in the week. The Aussie suddenly looks a decent alternative to a dollar that just had its wings clipped and rose to 98.66 U.S. cents and its highest since November 22. An AiG services sector PMI for November disappointed and came in at 46.2 and lower than October’s borderline reading of 50.7. Today’s report had the potential to weigh on the Aussie at the end of a week in which prospects for domestic consumption were duly dulled across several dour economic readings.

Canadian dollar –Canadian employers added marginally fewer new jobs during November but the overall addition of 15,200 was five-times the October pace. The rate of unemployment also dipped from 7.9% to 7.6% although full-time positions declined during the month by 11,500 indicating a pick-up in part-time work. The Canadian dollar came within three pips of parity against the U.S. dollar ahead of the report’s release this morning but lost its mojo following the data and later appeared limp alongside the greenback. It is only marginally lower on the session at 99.53 cents.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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