Dollar declines after August employment growth trails forecasts

The dollar fell from the highest in more than seven weeks against the euro after employers added fewer workers last month than forecast, damping speculation the Federal Reserve will cut bond purchases this month.

The U.S. currency weakened versus 15 of its 16-most-traded counterparts after a Labor Department report showed payrolls rose by 169,000 in August, compared with a median forecast of 96 economists surveyed by Bloomberg that called for a 180,000 jobs gain. The U.S. jobless rate fell 7.3 percent. The dollar declined for the first time in five days against the yen as Treasuries halted a decline that had taken 10-year yields to the highest level in more than two years.

“Not only did the headline number in August disappoint expectations, we also had a poor set of revisions,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said in a telephone interview. “Markets are going to start to question whether or not the Fed will be tapering.”

The dollar fell 0.1 percent to $1.3137 per euro at 8:44 a.m. in New York, after reaching its strongest level since July 19. It dropped 1.1 percent to 99.06 per yen. The 17-nation euro fell 1 percent to 130.07 yen.

The dollar appreciated 5.2 percent this year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro advanced 4.8 percent, while the yen slumped 9.2 percent.

Market Reaction

The greenback tumbled almost 1 percent against the yen on Aug. 2 after a report showed U.S. employers added 162,000 workers in July, less than forecast and the smallest increase in four months.

The gain in workers last month followed a revised 104,000 rise in July that was smaller than initially estimated, Labor Department figures showed today in Washington. Unemployment dropped to the lowest since December 2008.

“Assuming tapering is factored into the market already, the worse-than-expected jobs data would result into considerable scaling back in expectation,” Robert Lynch, a currency strategist at HSBC Holdings Plc in New York, said before the release of the jobs report. “Dollar will respond negatively to that.”

Minutes from the Federal Open Market Committee’s July 30-31 gathering, released Aug. 21, showed “almost all committee members agreed that a change in the purchase program was not yet appropriate,” and a few said “it might soon be time to slow somewhat the pace of purchases as outlined in that plan.”

Fed View

The FOMC will reduce its monthly purchases of $85 billion in bonds at its next meeting on Sept. 17-18, according to 65 percent economists in an Aug. 9-13 Bloomberg survey. The median estimate is a cut to $75 billion each month.

“The dollar’s strength will continue,” said Kikuko Takeda, a senior analyst in London at the Bank of Tokyo- Mitsubishi UFJ Ltd., a unit of Japan’s biggest financial group by market value. “The Fed is not looking for positive data to support the case for tapering, but it will go ahead with the plan unless there is particularly bad news.”

The euro fell yesterday after European Central Bank President Mario Draghi said that policy makers had discussed an interest-rate cut at a meeting this week.

Draghi said the ECB is “ready to act” as rising money- market rates threaten his drive to reassure investors that borrowing costs will stay low. He spoke after policy makers kept the benchmark rate at a record-low 0.5 percent.

“The euro has been under pressure on the back of ECB President Draghi sounding as dovish as he possibly could have in light of improved growth prospects,” Manuel Oliveri, a London- based foreign-exchange strategist at Credit Agricole Corporate & Investment Bank, wrote in a research note today.

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