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Dollar Sells Off Sharply on Disappointing U.S. Jobs Data

Friday February 6, 10:11 am ET

Dow Jones Newswires

NEW YORK -- The dollar sold off sharply Friday in New York as markets reacted with disappointment to the monthly U.S. jobs report.

In morning trading, the euro was at $1.2701, up from $1.2535 late Thursday in New York. The dollar was at 105.62 yen, down from 105.91 yen late Thursday. Against the Swiss franc, it was lower at 1.2337 from 1.2511, while sterling was up at $1.8482 from $1.8326.

Nonfarm payrolls increased by 112,000 in January, after an upwardly revised increase of 16,000 jobs the previous month, the Labor Department reported.

The data caught the market by surprise, with some saying that Thursday's rise in the dollar had priced in an even higher number than the 160,000 increase forecast by economists surveyed by Dow Jones Newswires and CNBC.

Meanwhile, the unemployment rate fell to 5.6% in January from 5.7% in December.

"People set themselves up for a huge upward surprise, and they just didn't get it," said Lauren Germain, foreign-exchange strategist at Bank of America in New York. "Expectations kept moving up as the moment got closer and closer."

The dollar, which had traded up to two-week highs against the yen around 106.75 but was stuck in a tight range against the European currencies, tumbled after the release of the data.

Pressure is likely to remain on the dollar going into the weekend, with investors wary of being long the U.S. currency as the two-day meeting of Group of Seven central bankers and finance ministers gets underway in Boca Raton, Fla., Friday.

Most market participants don't anticipate that the G7 communique, expected to be released Saturday, will stray far from the call in Dubai in September for " more flexibility in exchange rates."

Thomas Molloy, a trader at Bank Leumi in New York, said investors are "still smarting" from the selloff in the dollar in the wake of the Dubai statement, which was interpreted as an agreement to let the dollar decline to help stimulate the U.S. economy and correct the current account deficit.

"Coming into the meeting, the expectation is for the status quo, allowing the dollar to continue to slide," said Mr. Molloy.

The dollar's gains overnight against the yen came as Japanese officials have made it clear that they would continue their policy of intervening to keep the yen from rising too quickly and choking off exports.

Sadakazu Tanigaki, Japan's finance minister, said before heading to the G7 gathering in Florida that he will stress at the meeting that, "We've always said foreign exchange rates should move stably in reflection of fundamentals, and if they move out of line with such fundamentals, we will take necessary action."

Japan's Finance Ministry released data Friday showing that foreign-exchange reserves rose at the fastest pace ever in January due to intervention, jumping to $67.7 billion in the month to a record $741.25 billion.

Meanwhile, the U.S. employment report, while not that bad, throws some water on growing expectations that Federal Reserve policy makers may move into a tightening cycle earlier than expected.

The Fed first signaled a possible shift last week when it left interest rates unchanged but dropped the phrase that monetary policy could remain accommodative for a "considerable period."

Thursday afternoon, the dollar rebounded sharply from its lows after Fed Governor Ben Bernanke, considered a more dovish member of the Fed, revived hopes of an accelerated rate-hike schedule with a fairly upbeat assessment of the economy.

Mr. Bernanke said the Fed's new wording that it can "be patient" is defined in "economic time" and not meant to indicate an actual "timeframe" for policy.

"We can afford to be patient and wait and see how the economy develops over the next few months," he added.

Now, investors are "having second thoughts" about Mr. Bernanke's comments, as well as the timing of the Fed's next rate hike, said Marc Chandler, chief currency strategist at HSBC Bank in New York.


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