Dollar erases gain as below forecast jobs data damp rate outlook

(iStock)
(iStock)

New York - The dollar erased gains after a report showing September jobs growth trailed forecasts tempered speculation the Federal Reserve will raise interest rates by year-end.

The greenback weakened against most of its major peers after the Labour Department said the US added 156 000 jobs, compared with a median forecast of 172 000 in a Bloomberg survey of economists.

Currency traders are focused on views of central-bank speakers on Friday, including Fed Vice Chairman Stanley Fischer, for clues on the next policy action after the US currency reached the strongest level since July before the report.

"This report tells the Fed that jobs growth remains solid supporting a December hike, but the rise in the labour-force-participation rate and range-bound wages suggests they will hike very slowly,” said Ian Gordon, a foreign-exchange strategist at Bank of America Corporation in New York.

“It’s a good report but doesn’t force the Fed’s hand. It will support expectations for a December hike so the US dollar declines will be limited despite the initial headline disappointment.”

The jobs report dims the outlook for the dollar, which has already declined almost 3% this year. Traders are skittish on the prospects of a rate hike as mixed US economic data add to growing concern a potential pullback in stimulus from other central banks may stifle a global recovery.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, fell 0.1% as of 9:02 in New York, after climbing as much as 0.5%.

The report marks the second straight month payrolls data have fallen below expectations. The dollar weakened September 2 after the Labour Department said wage gains trailed projections and job gains were lower than forecast.

That helped to cut odds of a Fed hike.

Fed policy makers have raised interest rates only once since the financial crisis amid tepid global growth.

Following the employment report, traders saw about a 17% probability of a rate increase when the Fed issues its next policy statement November 2, less than a week before the US presidential election.

The chance of a hike by the following meeting in December was 63%. The calculation is based on the assumption the effective fed funds rate will trade at the middle of the new range after the central bank’s next boost.

"The market was probably leaning towards a strong report given the stronger data tone and hawkish Fedspeak," said Mark McCormick, North American head of foreign-exchange strategy at Toronto-Dominion Bank.

"This leaves a bit more time for the US dollar to consolidate so we see a bit more downside over the coming days."

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