Dollar Gains on U.S. Employment Gain, Damping Further Fed Stimulus Outlook

[Muthukali]

The dollar rose against the euro and yen after a report showed U.S. employers added more jobs last month than forecast, reducing speculation the Federal Reserve will introduce another round of asset purchases, known as quantitative easing, to stimulate the economy.

Nonfarm payrolls increased by 227,000 in February after rising by a revised 284,000 the prior month, data from the Labor Department showed today. The unemployment rate held at a three- year low of 8.3 percent. The euro weakened earlier after Greece said it triggered an option compelling investors to take part in its debt restructuring, damping demand for the region’s assets.

“It’s good news for the U.S. economy, arguably good enough news that prospects of QE3 start to become much more remote,” said Greg Anderson, a senior currency strategist at Citigroup Inc. in New York. “Looking at dollar-yen, which is most tightly linked to the short-end of the yield curve, we had an immediate reaction with the dollar pushing higher.”

The dollar rose 0.9 percent against the euro to $1.3158 at 8:43 a.m. in New York. The greenback added 1 percent to 82.35 yen.

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, advanced 0.7 percent to 79.741.

Dollar Measure
The measure fell 0.1 percent Feb. 3, when the Labor Department reported employment unexpectedly rose by 243,000 in January and the jobless rate fell to the lowest in three years. It added 0.4 percent Jan. 6, when both December payrolls and the unemployment rate outperformed economists’ expectations.

Some 1.2 million jobs were created in the past six months, the most since the same period ended May 2006.

Employment gains in the U.S. have been understated since the middle of 2010, showing the expansion is in a better position to withstand headwinds such as rising gasoline prices. The Labor Department has raised its initial estimate of payroll employment in all but two months since July 2010 through the end of last year.

Fed Chairman Ben S. Bernanke’s comments in a congressional testimony earlier last week damped speculation the central bank will introduce another round of asset purchases.

“We have seen some positive developments in the labor market,” Bernanke said in prepared testimony to the House Financial Services Committee in Washington. He said keeping monetary stimulus is warranted even as the unemployment rate falls.

Fed Steps
The Fed has bought $2.3 trillion of bonds in two rounds of so-called quantitative easing from December 2008 until June 2011. Central bank officials at their January meeting were keeping open the option of a third round of bond purchases in case the economy weakens or inflation falls too low.

The central bank has kept its benchmark interest rate between zero and 0.25 percent since 2008.

Implied volatility of one-month options on the euro-dollar currency pair has fallen to 9.8 percent from 10.6 percent a week ago. The gauge declined to a 10-month low of 9.79 percent on Feb. 24. Lower volatility encourages purchases of higher- yielding assets as the main risk in such trades is that foreign- exchange moves will erase profits.

 

[Muthukali]

S&P 500 Index Futures Gain With Dollar as Treasuries Retreat on Jobs Data

U.S. stock futures gained, Treasuries retreated and the dollar rose after government data showed the economy added more jobs than forecast last month, bolstering optimism that the labor market is improving.

Futures on the Standard & Poor’s 500 Index expiring in June advanced 0.3 percent to 1,364.2 at 8:38 a.m. in New York. Ten- year U.S. Treasury yields climbed three basis points to 2.04 percent and the Dollar Index added 0.7 percent.

The 227,000 increase in payrolls followed a revised 284,000 gain in January that was bigger than first estimated, Labor Department figures showed today in Washington. Job growth over the last six months was the strongest since 2006. The median projection of economists in a Bloomberg News survey called for a 210,000 rise in February employment.

Today is the third anniversary of the 2009 bear-market low for the S&P 500. The benchmark gauge has risen 102 percent since closing at 676.53 on March 9, 2009 on speculation the economy would recover from the worst contraction since the Great Depression. The index had tumbled 57 percent from its record high on Oct. 9, 2007, before starting its recovery three years ago. It’s still 13 below its all-team peak.

The S&P 500, which closed at an almost four-year high last week, completed its biggest two-day advance of the year yesterday as Greece moved closer to completing the biggest ever debt restructuring.

Greece said today it convinced private investors to forgive more than 100 billion euros ($132 billion) of debt, opening the way for a second rescue package.

 

[Muthukali]

Dollar Reaches 10-Month High as Jobs Gains Dim Outlook for More Fed Easing

The dollar strengthened, touching a 10-month high versus the yen, as better-than-forecast payrolls damped Federal Reserve monetary stimulus speculation.

The euro fell for a second week against the dollar as Greece’s use of collective-action clauses forcing investors to take losses under the nation’s debt restructuring will trigger payouts on $3 billion of default insurance. Mexico’s peso and Canada’s dollar rose against their 16 most-traded currencies amid stronger economic data for their biggest trading partner. The Dollar Index reached three-week high before the central bank holds and policy meeting March 13.

“The payrolls news sets the stage for the Fed finding it increasingly difficult to talk about further quantitative easing,” said Shahab Jalinoos, a senior currency strategist in Stamford, Connecticut, for UBS AG. “A trend of stronger dollar seems to be establishing itself. The currencies that are bucking that trend seem to be Mexican peso and Canadian dollar, which people see as better variations of the U.S. dollar.”

The dollar added 0.8 percent to 82.46 yen in New York, its fifth week of gains, the longest streak since March 2009. The euro fell 0.6 percent to $1.3123, in its first back-to-back weekly loss since Jan. 13. The Japanese currency weakened 0.2 percent to 108.22 per euro.

Futures Data
Futures traders increased net bets that the euro will weaken against the dollar. Wagers the shared currency will fall against the greenback exceeded those that will rise by 116,473 for the week ended March 6, figures from the Commodity Futures Trading Commission show.

Hedge funds and other large speculators are betting that the yen will fall against the dollar. Net-shorts for the yen were 19,358, compared with 1,203 a week earlier, the first time the market was net-short yen since May. A short is a bet that an asset will decline in value.

The euro reached a one-week high on March 8 amid speculation Greece had attracted enough public-sector involvement to carry out its debt-swap. It weakened as a report showed the region’s economy contracted last quarter. Europe’s gross domestic product shrank 0.3 percent from the third quarter, the region’s statistics office said March 6.

The European Central Bank kept its benchmark interest rate unchanged on March 8 and President Mario Draghi said recent surveys showed signs of regional economic stabilization.

European News
“Investor mindset is such that they’re just shunning European-denominated assets,” Samarjit Shankar, a managing director for the foreign-exchange group in Boston at Bank of New York Mellon Corp. said March 6. “You see this spate of news flow coming out showing that leading policy makers around the world coming to terms with growth being at a premium.”

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, advanced 0.6 percent to 79.959.

It touched 80.061, the highest since Feb. 16 as U.S. nonfarm payrolls increased by 227,000 in February after rising by a revised 284,000 the prior month, data from the Labor Department showed yesterday. The unemployment rate held at a three-year low of 8.3 percent.

“If the data continue to improve, however gradually, the markets should begin preparing themselves for the good Dr. Fed to wean them from their dependency rather than administer further dosage,” Federal Reserve Bank of Dallas President Richard Fisher said March 5 in a speech in Dallas.

Canada Jobs
Canada’s dollar was the second-best performer against its U.S. counterpart this week as the better-than-forecast payrolls in its largest trading partner outweighed a weaker-than- projected domestic report.

The Canadian currency weakened 0.1 percent to 99.05 cents per U.S. dollar. It touched C$1.0029 on March 6, the weakest level since Feb. 27. Mexico’s peso rose 0.9 percent to 12.6425 per dollar.

Japan’s yen weakened after reported a record current- account deficit, the biggest shortfall since comparable data began in 1985, undermining the currency’s haven status.

The yen’s weakness against growth-linked currencies such as the Australian and New Zealand dollars, after China said it will lower its target for economic growth to 7.5 percent, compared to 9.2 percent in 2011.

The yen has declined 6.9 percent in the past three months, the worst performer among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar fell 0.5 percent, and euro slid 2.7 percent.

Carry Trade
Borrowing yen at almost zero percent to invest in Australia’s dollar, Mexico’s peso, Brazil’s real and South Korea’s won returned 0.4 percent this week, according to data compiled by Bloomberg. The trade using euros would result in a 0.7 percent gain compared with a 0.6 percent loss using dollars.

Norway’s krone weakened after Trade Minister Trond Giske said its strength was hurting exports. Verbal intervention has increased in an attempt to contain the krone’s ascent after the currency climbed to a nine-year high of 7.3884 per euro this month. The krone fell 1.7 percent to 5.7007 per dollar and 1.1 percent to 7.4805 per euro.

Brazil’s real tumbled 3.5 percent to 1.7912 per dollar. It touched 1.7943, the weakest since Jan. 13.

The Brazilian government may reduce the maturity of short- term trade loans backed by export contracts, known as ACC, from 360 days currently, Sao Paulo-based newspaper Valor Economico reported March 7. It may also impose a tax on loans from companies outside Brazil to subsidiaries in the country, Valor said.