Dollar mixed as labor market soothes pain

It's difficult to isolate the impact of the recent debt-ceiling debate from the value of the dollar, with rationale argument concluding that the greenback has cheapened in face of longer-term budget concerns. What remains strange is, given that the European debt crisis is not only at the heart of the current bout of weakness but also only worsening, that the euro still hasn't cheapened below $1.4000. European political leaders see powerless in achieving a coordinated response other than repeated verbal ones. One politician today noted that the markets still needed convincing of the force of words from European leaders. Should euro bulls be forced to throw in the towel after so long, we could be in for a fast and furious ride to $1.3000.

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U.S. Dollar – The immediate reaction in the currency world following news of improving health within the labor market was to sell the dollar. That action lasted for no more than five minutes as dealers exchanged glances wondering why the dollar would weaken on good news finally went with their gut reaction. The dollar index remains lower on the day at 75.05 but it won’t surprise me if losses against the majors don’t turn in to a sharp rebound later in the day. The unambiguously positive employment report for July may not lead to a lasting turnaround in the stock market especially since the source of the problem is across the Atlantic. Still, a net gain of 117,000 jobs was beyond expectations, was dragged back by a loss of government jobs and felt the tailwind of a private hiring binge of 154,000 compared to expectations of 113,000. To boot, the report came complete with a healthy upwards revision to the June reading, with hiring for the month of June rising to 46,000 and replacing a previously recorded increase of just 18,000.

Euro – Overnight losses for the single currency have worn off as investors accepted ongoing losses for stock markets where sentiment has been roiled by increasing discomfort with the approach to the sovereign debt crisis by European governments. The euro slid to $1.4073 in Asia as that region’s stocks saw losses of 4% on the day taking the earlier lead of weakness in American shares. The ECB reluctantly resumed bond-buying following its monthly meeting on Thursday after a four-month hiatus but failed to rouse confidence given it only purchased Irish and Portuguese issues. The central bank remains frustrated at regional political failure to ring-fence the sovereign debt crisis and doesn’t want to buy national bonds where it feels insufficient effort has been made to mend the problem. Note the turn of phrase of the Belgian central bank chief who said noted that it makes no sense to “pour water in to a bucket with a hole in it.” The euro advanced against the dollar before U.S. employment data to trade at $1.4214 before the dollar turned tail forcing the single currency back to $1.4144.

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