By James Ramage
The dollar stumbled against the euro and the yen Thursday after
U.S. data indicated the labor market's gains remain uneven, further
denting investors' expectations for higher interest rates by
September.
The dollar weakened 0.3% against the common currency, with one
euro buying $1.1084 in late-afternoon trade. The U.S. currency fell
against the Japanese currency to Y123.10, now 0.1% lower for the
day.
Still, the dollar made small gains over the course of the week.
The Wall Street Journal Dollar Index, which compares the dollar
against 16 other currencies, rose just 0.5% for the week.
The dollar's shallow trajectory over the U.S.-holiday-shortened
week highlighted investors' reticence in the face of uncertainty
surrounding the Federal Reserve's intentions for U.S. interest
rates and the escalating Greek debt crisis. Many money managers
predict the dollar will resume its rise from earlier this year once
U.S. economic data improve sufficiently to persuade the Fed to
increase borrowing costs for the first time in nine years.
The latest U.S. data suggests dollar bulls could have longer to
wait. The U.S. added 223,000 jobs last month, from a downwardly
revised 254,000 in May, the Labor Department said. Economists had
forecast 233,000 jobs would be created in June. Hourly earnings, a
metric the Federal Reserve has said must rise at a faster pace,
held steady in June. Economists had expected a 0.2% increase in
wages from May.
"When we see that, that lessens the likelihood that Fed hikes
rates in September," Jim Caron, portfolio manager on the global
fixed income team at Morgan Stanley Investment Management, said of
the June report's numbers. "That's a negative for the dollar in the
longer run."
The asset manager, which oversees $406 billion, predicts the
U.S. central bank will raise interest rates in December. "The Fed
has no immediate need to raise interest rates in this environment,"
Mr. Caron said.
Given recent statements of caution by the Fed, as well as
uncertainty over the outcome of the Greek referendum on Sunday and
the country's future in the euro area, the market has mostly
discounted a September liftoff date for interest rates and is even
softening on December.
Federal-funds futures, which investors use to predict Fed
policy, show a 14% chance of a rate increase in September and a 48%
chance in December, compared with a 17% likelihood in September and
a 57% chance for December on Wednesday, numbers from CME Group
shows.
The Fed has said it is following data for inflation and
employment closely and would consider raising short-term interest
rates when the U.S. economy has strengthened in those areas. Higher
borrowing costs in the U.S. would draw more yield-hungry investors
to the dollar, especially as Europe and Japan are moving to
stimulate their economies through looser monetary policy.
Many investors still expect the dollar to strengthen over the
rest of the year, continuing a rally that saw the dollar rise 23%
against rival currencies between July 2014 and mid-March 2015.
"The rate of the dollar's rise was rapid; you really can't
expect it to continue that pace," said Minh Trang, senior currency
trader at Silicon Valley Bank. "You've been seeing investors take a
breather on the dollar. For the dollar and the market, the Greek
referendum is the next pivot point."
In other trade, the Swedish krona weakened after the Riksbank
cut main interest rate further into negative territory and enlarged
its asset-purchase program. The euro strengthened 1.2% against the
Swedish currency to 9.3756 kronor, while the dollar strengthened
0.9% to 8.4588 kronor.
Write to James Ramage at james.ramage@wsj.com