CURRENCIES: Dollar Dips Vs. Yen As Jobs Data Have Fed On Hold

By Nick Godt

The U.S. dollar edged lower against the yen Friday, and traded nearly flat against the euro, after a surprise jump in the U.S. jobless rate to more than 10% comforted views the Federal Reserve will stick to a loose monetary policy.

"Fed policy is likely on hold for a very long time," said RDQ Economists John Ryding and Conrad DeQuadros in emailed comments after the Labor Department said the jobless rate jumped to 10.2% in October, more than economists anticipated, and payrolls contracted.

"We expect the dollar to suffer against other currencies, gold and commodities as a consequence," they wrote.

The dollar slumped against the Japanese yen, another low-yielding currency, buying 89.88 yen from 90.73 in late North American trade Thursday.

But the dollar index (DXY), a measure of the greenback against a trade-weighted basket of rival currencies, stood at 75.760, virtually unchanged on the day.

The report first prompted a "knee-jerk bout of dollar buying, as bad economic news was viewed to be negative for risk appetite and for dollar carry trades," said Michael Woolfolk, currency strategist at the Bank of New York Mellon, in a note. "However, dollar gains proved short-lived."

For the week, the dollar index has lost 0.7%.

The euro, which had advanced against the U.S. dollar after the unemployment report, recently traded lower at $1.4840 from $1.4874 late in the prior session.

The U.S. economy shed 190,000 jobs last month, lifting the unemployment rate above 10% for the first time in 26 years, the Labor Department said. The report also revised statistics for September and August.

Economists surveyed by MarketWatch, were looking for a decline in nonfarm payrolls of 150,000 and for the unemployment rate to rise to 9.9%.

Risk stuck at neutral

The jobs report also held back stocks on Wall Street, leaving investors who've been borrowing dollars to invest in higher yielding assets stuck in the middle.

"Both dollar bulls and dollar bears were likely disappointed in the whipsaw price action this morning, with many in both camps getting stopped out," Bank of New York's Woolfolk said.

Exceptionally low rates in the U.S. have fueled a dollar carry trade, whereby investors borrow dollars to invest in riskier assets, such as stocks and commodities.

Both the S&P 500 Index (SPX) and the Dow Jones Industrial Average (DJI) ended with slight gains.

In recent months, the dollar has tended to fall when investors embrace risk, buying stocks and currencies from emerging markets and even Europe, where interest rates are higher. The U.S. dollar generally rises when investors seek a safe haven.

Rate hike a ways off

Bets the Federal Reserve will eventually lift interest rates from near 0% fell slightly after the report.

Fed fund futures traders anticipate the Fed will raise its target rate by mid-2010 to 0.31%, compared to a 0.33% rate before the data.

On Wednesday, the Fed left its target rate in a range of between 0% and 0.25%, and repeated its commitment to keep rates low for the foreseeable future, citing slack in the economy and little reason to worry about inflation.

G20 on tap

Many G20 members have expressed unease about the recent fall in the dollar, which has pressured their exports.

For analysts, the litmus test for any new peer review program will be China's foreign-exchange policy.

China has essentially re-pegged its currency to the dollar in the wake of the global downturn after allowing its currency to slowly strengthen from 2005-2007. With the dollar under selling pressure and China's yuan fixed, the other major global currency, the euro, has been pushed higher.

"Of particular interest is whether the Europeans complain further about the euro bearing the brunt of the dollar's downward adjustment," said Jane Foley, research director at Forex.com in London.

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November 06, 2009 17:14 ET (22:14 GMT)


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