Dollar Plummets on Weak Jobs Report

Closing the Week with Forexpros

by Forexpros Staff

The dollar tanked against most major global currencies on Friday after the U.S. government reported the economy added far less jobs than expected in August.

In U.S. trading on Friday, EUR/USD was up 1.31% at 1.2797.

The Bureau of Labor Statistics reported earlier that the U.S. economy created a net 96,000 nonfarm payroll jobs in August, well below market calls for 125,000 jobs.

The jobs report quickly fueled already growing sentiment that the Federal Reserve will roll out a third round of quantitative easing, possibly at its Sept. 12-13 monetary policy meeting.

Under quantitative easing, the Fed buys assets such as Treasury holdings or mortgage-backed securities held by banks, pumping the economy full of fresh liquidity in a way that pushes down interest rates to encourage investing and hiring.

Such accommodative policies tend to weaken the dollar by design.

The Bureau of Labor Statistics added that July’s figures were revised down to 141,000 from 163,000, while June’s figures were revised down to 45,000 from 64,000, further stoking market calls for Fed intervention.

The unemployment rate stood at 8.1% in August, down from 8.3% in July as more jobless workers exited the labor force.

The dollar was down against the yen, with USD/JPY trading down 0.75% at 78.27, and down against the Swiss franc, with USD/CHFtrading down 0.83% at 0.9458.

The dollar was down against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.48% at 0.9780, AUD/USDup 1.11% at 1.0399 and NZD/USD up 1.35% at 0.8122.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 1.08% at 80.24.

Gold

Gold also responded to the weak employment report and the increased prospects for further monetary easing.

On the Comex division of the New York Mercantile Exchange, gold futures for October delivery were up 1.99% and trading at USD1,737.05 a troy ounce, up from a session low of USD1,688.85 and down from a high of USD1,741.95 a troy ounce early during the session.

Gold futures were likely to test support at USD1,688.85 a troy ounce, the earlier low, and resistance at USD1,741.95, the earlier high.

Elsewhere on the Comex, silver for December delivery was up 3.02% and trading at USD33.660 a troy ounce, while copper for December delivery was up 3.51% and trading at USD3.640 a pound.

Oil

On the New York Mercantile Exchange, light, sweet crude futures for delivery in October traded at USD95.65  a barrel on Friday, up 0.13%, off from a session high of USD96.56 and up from an earlier session low of USD94.11.

The employment numbers numbers sent oil falling initially on the notion the U.S. economy may be cooling its already tepid recovery and will demand less energy and fuels going forward.

But then the weak jobs numbers quickly fueled already growing sentiment that the Federal Reserve will roll out a third round of quantitative easing at its Sept. 12-13 monetary policy meeting.

Meanwhile in Europe, oil continued to see support on ECB President Mario Draghi’s recent announcement that policymakers are planning to buy sovereign bonds with maturities of up to three years via an Outright Monetary Transaction scheme, which won’t affect the size of the ECB’s balance sheet.

The plan aims to lower borrowing costs in countries such as Italy and Spain and fight the European debt crisis.

On the ICE Futures Exchange, Brent oil futures for October delivery were up 0.20% and trading at USD113.72 a barrel, up USD18.07 from its U.S. counterpart.

Stocks

European stocks closed higher Friday, on solid German economic numbers despite disappointing U.S. job data.

At the close of European trade, the EURO STOXX 50 added 0.54%, France’s CAC 40 eased higher by 0.26%, while Germany’s DAX 30 climbed 0.66%.

Igniting the rally, official data indicated industrial production in Germany climbed by 1.3% in July, beating expectations for a 0.2% rise and following a revised 0.4% decline the previous month.

U.S. stocks traded in a narrow range with major indices ending slightly higher at the close.