Dollar rebounds on job hopes

The dollar (NYBOT:DX) rose from about an eight-week low against a basket of peers after a private report showed companies added more workers than forecast, signaling the U.S. economy may be gaining traction.

Europe’s 18-nation currency dropped to a 21-month low versus the pound after French Prime Minister Manuel Valls said in an interview with Les Echos newspaper that the European Central Bank needs to go further to weaken the euro. Policy makers meet in Frankfurt tomorrow. The greenback strengthened before Federal Reserve Chair Janet Yellen speaks today in Washington. Australia’s currency tumbled after the trade deficit widened more than economists forecast.

“It was much better than expected,” Mark McCormick, a macro strategist at Credit Agricole SA in New York, said in a phone interview, referring to the employment data. “What we’re seeing here is U.S. yields a bit higher, confirming the story out of the U.S. economy that we’re starting to see recovery in the second half of the year and that should be supportive of the U.S. dollar.”

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, added 0.2 percent to 1,004.54 at 9:09 a.m. in New York, after touching 1,002.25 yesterday, the lowest since May 8.

Market prices

The euro declined 0.2 percent to $1.3646 after rising to $1.3700 yesterday, the strongest level since May 21. It slid 0.1 percent to 138.79 yen. The Japanese currency lost 0.2 percent to 101.72 per dollar.

Australia’s dollar fell against most of its major peers after the statistics bureau reported the trade deficit expanded to A$1.9 billion in May, matching the largest since November 2012, and almost 10 times wider than the A$200 million shortfall predicted by economists in a Bloomberg survey.

Outbound shipments shrank 5 percent from the previous month. Prices of iron ore, Australia’s biggest export, fell 30 percent in the first two quarters, according to data from The Steel Index Ltd.

The Aussie dropped 0.6 percent to 94.43 U.S. cents after yesterday touching 95.05 cents, the strongest since Nov. 7.

“The declines that we’re seeing in some of our bulk commodity prices are feeding through into the trade numbers,” said Besa Deda, Sydney-based chief economist at St. George Bank Ltd. “It was a surprise outcome. The Australian dollar has come under downward pressure on the back of that.”

Pound rally

The pound rose for a third day versus the euro after a report showed U.K. construction growth accelerated in June, adding to signs of strength in the economy. It also appreciated to the highest level against the dollar in five years.

Sterling appreciated 0.2 percent to 79.57 pence per euro after reaching 79.51 pence, its strongest level since October 2012.

ECB policy can’t just focus on interest rates and an overvalued euro is bad for industry and growth, French President Valls told Les Echos in an interview published today.

ECB President Mario Draghi faces pressure to act on the shared currency after it strengthened the most in three months against the dollar following the ECB’s June 5 meeting, when policy makers cut the refinancing rate and moved the deposit rate below zero for the first time. Draghi also said he will introduce targeted offerings of liquidity to banks to encourage them to lend, and that officials will start work on purchases of asset-backed securities.

Risk assessment

The market is “definitely covering a little bit of risk after this decent little rally,” Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “We’ve had a decent correction higher after a near touch of $1.35 that we never really traded, but we we’ve had a decent correction since then.”

All economists surveyed by Bloomberg forecast the ECB will keep rates unchanged tomorrow.

Yellen will give a speech at the International Monetary Fund today in Washington. Traders are pricing in a 44 percent chance that the Fed raises borrowing costs from virtually zero by June 2015, down from 51 percent odds before Yellen reiterated on June 18 that rates would stay low for a “considerable time.”

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