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