July 6 (Bloomberg) -- The dollar strengthened to a two-year high against the euro and rose versus most other major counterparts as demand for safety increased after U.S. employers added fewer jobs in June than forecast.
The yen gained versus the greenback as the last U.S. employment report before the Federal Reserve’s next meeting showed the jobless rate stayed unchanged at 8.2 percent. The euro fell as a slide in Spanish industrial production added to concern Europe’s debt crisis will worsen.
“This number will continue to erode the fragile risk sentiment that we’ve been seeing lately,” Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York, said of the employment report. “The question will be will this be enough to prompt the Fed to reintroduce another QE,” or large-scale asset purchases.
The dollar appreciated 0.9 percent to $1.2280 per euro at 12:12 p.m. New York time, extending its weekly gain to 3.2 percent. It touched $1.2266, the strongest level since July 2010. The yen gained 0.4 percent to 79.63 per dollar and climbed 1.3 percent to 97.79 per euro.
The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the six currencies, advanced as much as 0.7 percent to 83.396. It was the highest since June 1, exceeding the 82.950 it touched yesterday after European Central Bank President Mario Draghi said the euro bloc still faces risks after policy makers cut their benchmark interest rate to a record 0.75 percent. The index has rallied 2.1 percent this week, the most since November.
Commodity-linked currencies dropped, led by the South African rand, which slid versus all of its 16 most-traded peers. Stocks and commodities fell, with the Standard & Poor’s 500 Index losing 1.3 percent and the S&P GSCI Index of 24 raw materials dropping 2.3 percent.
Payrolls increased by 80,000 jobs last month after a revised gain of 77,000 in May, Labor Department data showed today in Washington. Economists projected an increase of 100,000, according to the median estimate in a Bloomberg News survey. Private employment, which excludes government agencies, grew 84,000 in June, the weakest in 10 months.
“There are two forces going on with this number,” John Shin, senior Group-of-10 foreign-exchange strategist at Bank of America Corp. in New York, said in a telephone interview. “One is the natural risk-off, dollar-positive sentiment. Counteracting that is that a weak number further implies more quantitative easing in the fall, which is dollar-negative.”
The greenback has gained 5.3 percent against the euro this year as investors sought safety amid speculation Europe’s financial turmoil was worsening and U.S. growth was slowing. The dollar fell 2.4 percent in June against the common currency on speculation Europe was tackling its debt crisis.
The euro weakened earlier as Spanish industrial production adjusted for the number of working days fell 6.1 percent in May from a year earlier, after an 8.3 percent decline in April, the National Statistics Institute said in Madrid. Spain’s recession probably intensified in the second quarter as Europe’s debt crisis worsened, the central bank said on June 27.
The Spanish 10-year yield rose as much as 26 basis points, or 0.26 percentage point, to 7.04 percent after jumping 37 basis points yesterday.
“Downside risks to the euro-area economic outlook have materialized,” ECB President Mario Draghi said yesterday after cutting the main refinancing rate and reducing interest on overnight deposits to zero.
The euro has slumped 9.1 percent over the past year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar gained 9 percent, and the yen climbed 9.1 percent.
U.S. Treasuries rose today, pushing 10-year note yields down to 1.54 percent, their lowest level in a month, as investors sought havens.
Higher-yielding currencies fell. South Africa’s rand was the biggest loser against the greenback, sliding 1.6 percent to 8.2780. The Australian dollar lost 1 percent to $1.0186, and New Zealand’s dollar weakened 0.9 percent to 79.65 U.S. cents.
The pound rose for a third day against the euro as traders bet the Bank of England’s bond-purchase program will weigh less on the currency than the policies of other central banks. It gained 0.6 percent to 79.38 pence.
The Fed will issue its next policy statement on Aug. 1 after a two-day meeting. The central bank pumped $2.3 trillion into the financial system from 2008 to 2011 to support the economy in two rounds of debt purchases under quantitative easing. It’s shifting $667 billion of short-term debt in its holdings to longer-term debt to cap borrowing costs, a program it expanded last month, and has kept its key interest rate at zero to 0.25 percent since December 2008.
Chairman Ben S. Bernanke said June 20 after the last policy meeting that the Fed is prepared to consider additional steps to spur growth and employment, including further asset purchases.
Policy makers last month lowered their forecasts for growth and raised their predictions for unemployment in each of the next three years. They now see 1.9 percent to 2.4 percent growth in 2012, down from their April forecast of 2.4 percent to 2.9 percent. The jobless rate will end the year at 8 percent to 8.2 percent, up from 7.8 percent to 8 percent in April.
China cut its key interest rate yesterday for the second time in a month, and the Bank of England expanded its asset- purchase stimulus program by 50 billion pounds ($78 billion) to 375 billion pounds.