Dollar erases advance as payrolls decline damps Fed taper bets

The dollar erased gains (NYBOT:DXH14) after U.S. employers added fewer jobs than forecast in December, reducing speculation that the Federal Reserve will wind down bond-buying as expected amid signs of economic growth.

The greenback fell from almost a four-month high as payrolls grew by 74,000 in December, versus the median forecast in a Bloomberg News survey for a 197,000 advance, and the unemployment rate fell to 6.7%. Fed policy makers decided to cut monthly purchases to $75 billion from $85 billion at a gathering last month, citing improvement in the labor market.

“Massive miss on the top-line number,” said Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut. The data “should be dollar negative and emerging- markets positive.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major counterparts, decreased 0.1% to 1,027.52 at 8:43 New York time, after earlier rising 0.2% to 1,030.38. Yesterday it touched 1,030.42, highest sinse Sept. 9.

The December payrolls increase was the slowest pace since January 2011 and less than the most pessimistic projection in a Bloomberg survey. It followed a revised 241,000 advance the prior month, Labor Department figures showed. The unemployment rate dropped to the lowest since October 2008, as more people left the labor force. It was at 7% the previous month.

Jobless Claims

Investors will use the jobless data “as an opportunity to book profit on the dollar’s recent gains,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview before the release. “I don’t think it’ll serve as a game changer -- it looks like the U.S. economy appears to be on a much sounder footing than its rivals.”

U.S. jobless claims fell by 15,000 to 330,000 in the week ended Jan. 4, the Labor Department said yesterday. The median forecast of economists surveyed by Bloomberg was for a reading of 335,000.

Minutes of the central bank’s last meeting released Jan. 8 showed officials saw diminishing economic benefits from bond- buying and expressed concern about risks to financial stability.

The policy makers will gather Jan. 28-29 to consider the next step in their strategy of gradually reducing the pace of purchases. They will trim buying in $10 billion increments over the next seven meetings before ending them in December, according to the median forecast in a Bloomberg News survey on Dec. 19.

Gross domestic product in the world’s largest economy will expand 2.6% this year and 3% in 2015, compared with 1% and 1.4% in the euro area, according to economists surveyed by Bloomberg.

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