Dollar falls after weak employment data

  • The dollar fell to a three-week low against a basket of currencies Friday, after weaker-than-expected U.S. employment data for May clouded the chances for a rate increase from the Federal Reserve this summer and sparked worries of a looming slowdown in global growth.
  • S. companies slowed their hiring drastically in May as people dropped out of the labor force.
  • Nonfarm payrolls rose by a seasonally adjusted 38,000 in the month, the weakest performance since September 2010.
  • So far, the dollar rose more than 3% in May against other currencies, as Fed signaled that the economy was strong enough to support a rate increase in coming months. Higher rates tend to boost the dollar, as they make the currency more attractive to yield-seeking investors.
  • Recent evidence of an uneven U.S. recovery, however, has argued against of a Fed move. While data on Tuesday showed U.S. home prices rising sharply in the spring and consumer spending climbing at its fastest pace in seven years, other indicators, like consumer confidence and the Chicago Business Barometer, have disappointed.
  • Federal-funds futures, a popular tool used by investors to place bets on U.S. central-bank policies, were showing that the odds of an interest-rate increase at the Fed’s June meeting were 4%, down from 21% before the jobs report, according to data from CME Group. The same futures contracts suggest a 34% likelihood for a rate increase by July, down from 58% before the release.
  • Perceptions that the U.S. economy is faltering could lead traders to abandon assets perceived as risky and pile into safe-haven investments such as gold, Treasurys and the Japanese yen.
  • Ferridge, head of macro strategy for North America at State Street, said he is recommending Treasurys, as well as betting against that the dollar will fall against the euro and yen.
  • Some market watchers said it would take several bad misses in U.S. employment to convince investors the economy is slowing. Job creation tends to ebb as the employment rate falls, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.
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