FOREX-Dollar rallies across the board on strong U.S. jobs data

Fri Jul 5, 2013 11:44am EDT

Related Topics

* U.S. economy added 195,000 jobs in June, boosting dollar
    * Dollar index hits nearly three-year high
    * Potential Fed action stark contrast to ECB, BoE

    By Gertrude Chavez-Dreyfuss
    NEW YORK, July 5 (Reuters) - The dollar gained broadly on
Friday, hitting five-week highs against the yen and a six-week
peak versus the euro as better-than-expected U.S. jobs data
reinforced expectations the Federal Reserve would start scaling
back its asset purchases as early as September.
    Futures traders were also betting the U.S. central bank will
start hiking short-term interest rates by September next year,
which would make dollar assets more attractive. 
    Almost all the components of the U.S. nonfarm payrolls
report for June were positive for the economy, suggesting that
the labor market was stabilizing. Employers added 195,000 jobs,
compared with forecasts of 165,000, while the unemployment rate
was steady at 7.6 percent as more people entered the workforce.
    What's more, the U.S. government revised payrolls for April
and May to show 70,000 more jobs created than previously
reported. 
    "With labor market numbers confirming that the U.S. economy
is performing well enough for the central bank to reduce
stimulus, we expect a further rally in the dollar," said Kathy
Lien, managing director at BK Asset Management in New York. 
    The euro fell as low as $1.2805 against the dollar,
its weakest since May 20. It was last at $1.2834, down 0.6
percent.
    Against the yen, the dollar touched a peak of 101.13
yen, its highest since May 31. It was last at 100.94, up 0.9
percent.
    Despite gains in the dollar, the options market showed 
strong demand for dollar/yen puts, or bets the U.S. currency
will lose ground. This could suggest investors are
bracing for further dollar gains and they are hedging those
positions with puts on the greenback.
    The greenback's gains pushed the dollar index to a high of
84.530, a nearly three-year peak. By late morning New
York trading, the dollar index was up 1.4 percent at 84.383.
    The Fed's potential reduction of stimulus measures was in
sharp contrast with statements from the European Central Bank
and the Bank of England, which vowed on Thursday to keep their
monetary policies accommodative for some time.
    The gap between 10-year U.S. Treasury bond yield 
 and German Bunds was at its widest
since April 2010, pointing to more gains for the dollar.
    "The remarkable press conference by the ECB in which the ECB
engaged in an explicit form of forward guidance in our view
marks the beginning of the end of euro resilience," said Peter
Kinsella, currency strategist at Commerzbank in London. 
    "That the euro was relatively resilient in the first place
was really a function of its relative policy mix," he added.
    Sterling, meanwhile, fell to a nearly four-month low of
$1.4856 against the dollar and was last at $1.4887, down
1.2 percent.
    Commerzbank's Kinsella said the dollar has undergone a
regime change, trading more like a growth-oriented currency. He
said gains in the dollar will still be more pronounced against
the yen.
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