By William L. Watts and Arti Patel
August 3, 2012
SAN FRANCISCO (MarketWatch) — The dollar added to losses Friday, trading lower against most major rivals thanks to a stronger-than expected U.S. employment report, while the euro gained and two-year Spanish and Italian government bonds rallied.
The ICE dollar index, which measures the U.S. currency against a basket of six major rivals, fell to 82.40, down from 82.98 before the payrolls data and from 83.32 late Thursday.
The Labor Department said nonfarm payrolls expanded by 163,000 in July, handily beating the 100,000 forecast of economists polled by MarketWatch. U.S. equities opened sharply higher, then added to gains after the Institute for Supply Management’s report on services showed modest improvement last month.
The data sapped appetite for low-yielding currencies seen as safe havens.
“The payroll numbers that came out should help the dollar, but because it’s a safe haven, that’s not happening,” said David Song, currency analyst for FXCM. “Investors are moving away from the safety of the U.S. dollar and moving toward higher risk/reward sentiments.”
The WSJ dollar index, which gauges the greenback’s moves against some of the other heavily traded global currencies, dropped to 71.46 from 72.20 late Thursday.
A day after the European Central Bank chief Mario Draghi disappointed markets by not meeting expectations for bold measures to ease the region’s debt crisis, the euro rebounded to $1.2386 from $1.2180.
“Today’s moves are in line with interpretations and budding speculation about what the ECB will do now,” Song said. “Draghi’s statements were disappointing, but overnight speculation is gaining pace for a bazooka to be rolled out.”
Spanish and Italian two-year bonds rallied Friday, pulling yields down sharply, on Draghi’s comments Thursday that any future ECB bond-buying efforts would focus on the short end of yield curves. Ten-year yields also fell, but lagged.
“I think that it certainly helped that the ECB may move into buying bonds,” Kathy Lien, managing director of foreign-exchange strategy for BK Asset Management said, noting a two-fold situation happening in Europe.
“We’re seeing optimism in both European bonds and currencies,” Lien said. “It’s saying maybe the outlook for the global economy for the rest of the year isn’t as bad as we were anticipating.”
Rumors that Spain’s government could signal Friday that it is ready to apply to the euro zone’s rescue fund for help in controlling borrowing costs helped lift the euro and equities, strategists said.
However, at a news conference, Spanish Prime Minister Mariano Rajoy said he had made no decision yet.
Among other major currencies Friday, the British pound traded at $1.5631, up from $1.5515, while the Australian dollar climbed to $1.0559 from $1.0460.
Against the Japanese currency, the greenback changed hands for ¥78.58, up from ¥78.20 in New York Thursday.