Strong Jobs and Service Data: U.S. Dollar Plummets

Closing the Week with Forexpros

by Forexpros Staff

The dollar plunged against most major global currencies on Friday after much stronger-than-expected jobs data hit the wire in the U.S. and fueled an appetite for risk worldwide. Improving service-sector data out of the U.S. also contributed to the greenback falling.

In Asian trading on Friday, EUR/USD was up 1.62% at 1.2378.

The U.S. economy added a net 163,000 net nonfarm payrolls in July, according to the Bureau of Labor Statistics, far more than market expectations for a gain of 100,000 and well above June’s revised figure of 64,000.The news sparked a global risk-on trading session in which investors ditched the greenback, a safe-harbor asset class, and scrambled for higher-yielding currencies and equities.

Meanwhile, the Institute for Supply Management’s service-sector index outpaced expectations last month as well.  In a report, the Institute for Supply Management said that its non-manufacturing purchasing managers’ index rose to a seasonally adjusted annual rate of 52.6 in July, up from 52.1 in June.  Analysts had expected the index to rise 52.0.   The service sector employs the bulk of the U.S. labor market.

The dollar also sank against other currencies on sentiment that despite the strong jobs numbers out of the U.S., intervention from the Federal Reserve is still a real possibility.

The Federal Reserve has said it will remain on the sidelines but poised to stimulate the economy as needed.

Investors traded on sentiment that one solid jobs report doesn’t signal an end to tepid recovery and a beginning of more robust expansion, which leaves the door open to Fed stimulus measures.

The overall unemployment rate rose to 8.3% in July from 8.2% despite the uptick in hiring, reflecting a view that an underlying weakness in the economy still persists.

Federal Reserve stimulus tools such as bond purchases from banks tend to weaken the dollar, and talk such easing is still possible sent the greenback falling even further against global currencies.

Elsewhere, eurozone retail sales beat expectations as well, rising 0.1% in June after gaining 0.8% in May.

Markets were expecting a decline of 0.1%.

The greenback, meanwhile, was down against the pound, with GBP/USD trading up 0.83% at 1.5642.

The dollar was up against the yen, with USD/JPY trading up 0.45% at 78.59, and down against the Swiss franc, with USD/CHF trading down 1.52% at 0.9711.

The dollar was down against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.65% at 1.0008, AUD/USD up 0.86% at 1.0554 and NZD/USD up 0.99% at 0.8183.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 1.14% at 82.46.

Gold

Gold prices rose in U.S. trading on Friday.   On the Comex division of the New York Mercantile Exchange, gold futures for October delivery were up 1.03% and trading at USD1,604.95 a troy ounce, up from a session low of USD1,587.05 and down from a high of USD1,607.45 a troy ounce early during the session.

Gold futures were likely to test support at USD1,587.05 a troy ounce, the earlier low, and resistance at USD1,629.25, the high from July 31.

Elsewhere on the Comex, silver for September delivery was up 2.69% and trading at USD27.720 a troy ounce, while copper for September delivery was up 2.21% and trading at USD3.363 a pound.

Oil

On the New York Mercantile Exchange, light, sweet crude futures for delivery in September traded at USD91.13 a barrel on Friday, up 4.51%, off from a session high of USD91.70 and up from an earlier session low of USD87.31.

The news not only primed sentiments that the U.S. economy will demand more oil and fuels, it also sparked a global risk-on trading session in which investors ditched the greenback for higher-yielding currencies, equities and commodities.

The news came in the heels of reports that U.S. stockpiles may be declining.  The U.S. Energy Information Administration said earlier this week that the country’s crude oil inventories dropped by 6.52 million barrels in the week ending July 27, far more than forecasts for a decline of 709,000 barrels.

Total gasoline stocks fell by 2.17 million barrels, the EIA added.

Investors also kept an eye on the Caribbean Sea, where Tropical Storm Ernesto continued to churn early Friday.  Some forecast models predicted the storm to intensify to a hurricane in the Caribbean Sea but closer to the oil-rich Gulf of Mexico in the coming days, which further pressured prices higher, as approaching storms affect offshore oil drilling.

On the ICE Futures Exchange, Brent oil futures for September delivery were up 2.53% and trading at USD108.58 a barrel, up USD17.45 from its U.S. counterpart.

Natural Gas

Natural gas futures continued lower Friday,  bucking the overall commodity rally, as  Thursday’s U.S. government data showed that inventory levels rose more-than-expected last week, fuelling concerns over a supply glut.

On the New York Mercantile Exchange, natural gas futures for delivery in September traded at USD2.901 per million British thermal units during U.S. morning trade, falling 0.67%. 

The Energy Information Administration said that natural gas in storage grew by 28 billion cubic feet to 3.217 trillion cubic feet for the week ended July 27.  Analysts had forecast an increase of 23 billion to 3.167 trillion cubic feet.

Total natural gas inventories are now 14.5% above the five-year average of 2.810 trillion cubic feet for this week and 17.2% above last year’s level of 2.745 trillion cubic feet, according to the government data.

The increase last week compares with an addition of 43 billion cubic feet a year ago and a five-year average build of 56 billion cubic feet.

Stockpiles rose to 60% above the five-year average earlier this year after a mild winter cut demand for natural gas to heat homes and businesses, sparking fears that supplies would exceed available storage capacity by the end of the year.

Prices had climbed to the highest levels of the year earlier in the week, as forecasts for higher-than-average temperatures across much of the U.S. boosted the outlook for increased gas-powered electricity consumption.

Warmer-than-normal temperatures increase the need for gas-fired electricity to power air conditioning, boosting demand for natural gas. Natural gas accounts for about a quarter of U.S. electricity generation.

Stocks

European stocks closed explosively higher Friday, as strong U,S. employment numbers combined with a raft of solid earnings sparking the  global equity rally.  At the close of European trade, the EURO STOXX 50 jumped 4.83%, France’s CAC 40 rocketed 4.38%, while Germany’s DAX 30 exploded 3.94%.

In the U.S., equity markets followed sharply higher with the Dow up 1.87%, the broad based S&P 500 higher by 2.04% and the tech heavy Nasdaq advancing 2.16% in midsession trade. All htree indices closed the day with gains only slightly below the midday levels:  Dow +1.69%, S&P +1.90% and Nasdaq +2.00%.