NEW YORK, Sept 3: The dollar recovered some of its losses against major currencies on Friday, after a softer-than-expected US employment report for August showed upward revisions in job growth for previous months.
The US economy added 169,000 jobs to non-farm payrolls last month, lower than market expectations of 190,000. But the Labour Department revised upward jobs growth in June and July, raising the number for those two months by a combined 44,000.
Analysts said the report may have slightly reassured markets that the Federal Reserve would continue raising US interest rates, at least at this month’s meeting.
That should enhance the allure of some dollar-denominated assets such as short-term deposits.
But while the payrolls report is one of the most important reports on the United States economy, on Friday the market was more concerned about the havoc wrought by Hurricane Katrina.
The dollar initially fell after seeing the August figure but recovered once traders digested the report’s details. The euro came off three-month highs of around $1.2589 to fall to $1.2541, still up 0.3 per cent from late Thursday.
There certainly is a bias to be less dollar bullish, said Ed Stapleton, head of foreign exchange at Fortis Bank in New York.
This last six months or so has been a growth and interest rate differential story caused by the higher growth levels in the U.S. but we need to wait to see what the longer term effect of this (hurricane) is.
Financial markets will be closed on Monday for Labour Day.
The dollar was down 0.1 per cent against the yen at 109.67 yen . Against the Swiss franc, the dollar fell 0.5 per cent on the day to 1.2285 francs.
Sterling was up 0.5 per cent at $1.8436.
Other analysts were also less optimistic about the employment report, despite the upward revisions.
The big problem is that if we had known this a week ago, it would have been a good number. It just seems to pale into insignificance.
The market is of the mind-set that we have pre-Katrina and post-Katrina data, said Sean Callow, senior currency strategist at Westpac Banking Corp in New York.
A report from employment consulting firm Challenger, Gray & Christmas Inc. released on Friday gave dollar bulls cause for temporary relief, however.
It said US employers reduced their plans for further job cuts by a third in August, bringing lay-off announcements to their lowest level since April.
Speculation that the Fed’s tightening cycle may be coming to an end after a string of poor US data and the havoc wrought by Hurricane Katrina has weighed on the dollar this week.
October Fed Funds futures still suggest a more than a 50 percent chance of tightening in September, but it has certainly come off from the beginning of the week, analysts say.
Adherence of the Fed to its measured pace of removing monetary accommodation must certainly be called into question in light of the (Katrina) disaster, said Michael Woolfolk, senior currency strategist at The Bank of New York.
However, the nature of this crisis suggests a pause at an upcoming meeting is a far more likely outcome than an inter-meeting cut.
The muted reaction of asset prices until now does not appear to justify an inter-meeting move, he added.
As oil prices hover near record highs and bond yields plunge, investors are becoming apprehensive of US growth prospects and their impact on the dollar.
US oil futures ended below $68 a barrel on Friday, still within sight of their all-time peak at $70.85 hit early this week in the wake of Katrina’s devastation of United States oil and gasoline operations in the Gulf of Mexico.—Reuters
