By James Ramage
The dollar fell against the yen and euro on Friday after a
weaker-than-expected U.S. jobs report for July pushed back
investors' timing for the first increase in interest rates since
the financial crisis.
The dollar eased 0.2% against the yen to Y102.56. The euro
climbed 0.3% to $1.3429 but remained near an eight-month low
against the dollar, as a selloff has driven it down around 4% since
early May.
The jobs report, a primary gauge the Federal Reserve uses to
evaluate the labor market, showed that U.S. employers added jobs at
a moderate pace, while the unemployment rate ticked higher to 6.2%
in July from June. The U.S. economy added 209,000 jobs in July,
below forecasts of 230,000, while June's robust job gains were
revised upward.
Though the report showed a sixth straight month of job gains
above 200,000, wage growth, an important Fed indicator, continued
to stagnate. Coupled with the rise in the unemployment rate, the
report provided the central bank little incentive to change its
outlook, or push forward its schedule to raise rates.
The jobs report drove investors into U.S. Treasurys,
particularly those with shorter maturities, causing yields on the
two-year note to decline, and prices, which move inversely to
yields, to rise. Yields on notes with shorter maturities are
directly affected by changes in Fed interest-rate policy.
The falling two-year yield dragged the dollar lower against
rivals. Lower U.S. yields make the dollar less alluring to
investors, as they decrease returns on assets denominated in the
currency.
"The dollar corrected a little bit after rising nicely over the
last week or two," said Carl Forcheski, director in corporate FX
sales at Societe Generale. "Today's news probably took away some
fears in the market that the liftoff in rates was inching a little
closer."
The greenback has rallied over the week on stronger economic
data, luring investors to pile into bets that the dollar would
continue to rise and raising expectations for a robust July jobs
number.
Although the report fell short of expectations, it is unlikely
to prompt any longer-term weakness in the dollar, said Robert
Lynch, currency strategist at HSBC. U.S. data, including those in
the July jobs report, still point to an improving economy overall,
which should keep the dollar supported, Mr. Lynch said.
The dollar declined against emerging-market currencies, falling
0.5% against the Turkish lira, 0.3% versus the South African rand
and 0.2% against the Mexican peso. The greenback also tumbled 1.8%
against the Indonesia rupiah.
Emerging-market currencies, which have been hit hard by the
recent dollar rally and the drama surrounding Argentina's recent
default, reversed some of their losses Friday.
"The jobs report put a bid back into the [emerging-market]
trade, as investors have scaled back somewhat their expectations
for a rate hike by the Fed," said Brad Bechtel, managing director
at Faros Trading.
Investors have been seeking emerging markets for the returns
they derive from the difference between a currency with a higher
interest rate, such as the Brazilian real, and one with a low
interest rate, such as the dollar. Emerging-market currencies would
suffer if the Fed raised interest rates and eroded the yield
advantage they currently enjoy.
Improving data have buttressed views in the market that the U.S.
economy is approaching the Federal Reserve's mandates. In a
statement this week, the Fed acknowledged the improving numbers,
suggesting it may be moving closer to its first rate increase since
the financial crisis.
Write to James Ramage at james.ramage@wsj.com