Dollar rises to two-month high as employment gains top forecasts

Jobless Rate

The dollar jumped as last month’s jobs increase beat all estimates in a survey of 91 economists, whose top prediction was a gain of 175,000 amid the disruption of the 16-day partial government shutdown that ended Oct. 17.

The gains followed a revised 163,000 advance in September that was larger than initially estimated, Labor Department figures showed today in Washington. The jobless rate rose to 7.3% from an almost five-year low.

“Markets will be starting to talk about December tapering again,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a phone interview. “Expectation for this jobs report was subdued, but it was a sizable surprise to the upside.”

March Taper

The Fed will maintain the level of purchases at $85 billion of bonds a month until March, according to the median estimate of 40 economists in a Bloomberg survey conducted Oct. 17-18. A survey in September forecast the first reduction would be in December.

Analysts pushed out their projections following the government shutdown, which they estimated reduced growth by 0.3 percentage point this quarter.

The Fed’s next policy meeting is scheduled for Dec. 17-18.

The dollar rallied the most on an intraday basis against the euro since December 2011 yesterday after the European Central Bank cut its benchmark interest rate to a record low 0.25% as a drop in inflation to the slowest pace in four years threatened its mission to keep prices stable.

The greenback extended gains after gross domestic product rose 2.8% on an annualized basis for the July to September period, topping the 2% forecast in a Bloomberg News survey, the Commerce Department said yesterday.

Euro Sinks

The euro declined today as S&P downgraded France to AA from AA+ with a stable outlook, saying the government’s reform of tax, labor markets, products and services won’t raise medium- term growth prospects.

The euro will drop to $1.33 against the greenback before the end of 2013, and will depreciate further to $1.32 by the end of the first quarter, according to the median estimate of 81 economists surveyed by Bloomberg.

Volume in over-the-counter foreign-exchange options on the dollar-yen exchange rate amounted to $14 billion today, the largest share of currency trades at 27%, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. The total was 80% more than the average trading for the pair for the past five Fridays at a similar time.

Options on the euro-dollar rate totaled $10 billion, or 19% of the total, with trading in the pair 50% more than average. Total options trading was $53 billion today, from $55 billion yesterday.

Europe’s single currency has gained 5.5% this year, the best performer among 10 developed-market peers tracked by Bloomberg Correlation-Weighted Indexes. The yen has fallen 10%, the biggest decliner, while the dollar has gained 4%.

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