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4 years ago
FOREX-Dollar falls broadly as Fed stimulus seen steady after jobs data
October 22, 2013 / 3:52 PM / 4 years ago

FOREX-Dollar falls broadly as Fed stimulus seen steady after jobs data

* U.S. economy adds 148,000 jobs, fewer than expected
    * Data drives expectations of Fed maintaining stimulus
    * Labor participation rate adds to expectations on stimulus

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 22 (Reuters) - The dollar fell across the
board on Tuesday after the government reported the U.S. economy
added a disappointing 148,000 jobs last month, cementing
expectations that the Federal Reserve is likely to keep its
stimulus plan unchanged for the rest of the year.
    The greenback dropped to a near two-year low versus the
euro, a 20-month trough against the Swiss franc, and a
4-1/2-month low versus the Australian dollar. Against a basket
of currencies, the dollar hit an eight-month low.
    Economists were expecting U.S. job gains of 180,000 in
September, data for a period that preceded the 16-day government
partial shutdown in October. With the shutdown expected to have
damaged the U.S. economy, the conviction that the Fed will not
reduce its asset buying anytime soon became even more
entrenched. 
    "Is the Fed getting tired of being right? Today's
underperforming jobs number fully justifies September's cautious
FOMC," said Joseph Trevisani, chief market strategist at
WorldWideMarkets in Woodcliff Lake, New Jersey. 
    "Full-bore quantitative easing will probably be with us
through the first quarter and speculation for an increase may be
no further than another weak payroll."
    The unemployment rate did dip to 7.2 percent last month, the
lowest level since November 2008, but the expected toll of the
government shutdown on the economy eclipsed any signs of
strength.
    Economists estimated that the government shutdown shaved as
much as 0.6 percentage point off annualized fourth-quarter gross
domestic product, through reduced government output and damage
to both consumer and business confidence. 
    The labor participation rate in September held fast at a
35-year low, unchanged at 63.2 percent.
    "A 35-year low in the participation rate indicates that the
recent improvement in the unemployment rate has been influenced
in no small way by discouraged workers leaving the labor force,"
said Michael Woolfolk, global market strategist, at BNY Mellon
in New York. "This report clearly reduces the likelihood of
tapering."
    In midday New York trading, the euro hit a high of $1.3785
 against the dollar, its strongest level since
mid-November. It was last at $1.3781, up 0.7 percent. 
    The euro's gains pushed the dollar index, a gauge of the
dollar's value against six major currencies, to its weakest
level in eight months at 79.223. The index last traded at
79.263, down 0.4 percent.
    Against the yen, the dollar fell as low as 97.86. It
last traded at 98.08 yen, down 0.1 percent on the day.
    Following the September jobs report, futures prices
suggested that the Fed will raise interest rates no earlier than
April 2015, giving a 54 percent probability of an increase that
month, according to CME Group's Fed Watch. Fed Watch generates
probabilities based on the price of Fed funds futures traded at
CME Group Inc's Chicago Board of Trade.
    Before the report, traders were giving a 59 percent
probability for an April 2015 rate rise.
    Chicago Fed President Charles Evans said on Monday it would
be "tough" for the U.S. central bank to have enough confidence
in the economy by its December meeting to start scaling back
stimulus. 
    The fiscal deal clinched last week by U.S. lawmakers only
restored government funding until Jan. 15.    
    The Australian dollar climbed to a 4-1/2-month peak against
the greenback at US$0.9730. It has retraced half of its
April-to-August fall.
    Morgan Stanley's head of European FX strategy, Ian Stannard,
said he expects the Australian dollar to rise toward US$0.98 in
the near term as it benefits from higher interest rates and
because Australia has stronger links to China than to the United
States.
    The U.S. dollar also fell against the Swiss franc, hitting a
20-month low of 0.8941 franc. It was last at 0.8944
franc, down 0.8 percent on the day.

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