U.S. companies unexpectedly shed jobs in August for the first time in four years, the Labor Department said Sept. 7, prompting traders to add to bets the Fed will reduce rates to 4.75 percent by Sept. 18. Two-year German government bonds yielded more than comparable-maturity U.S. Treasuries for a second trading day.
``The U.S. job losses certainly don't bode well for the prospect of the dollar, and have taken all doubt away from whether the Fed is going to cut or not,'' said David Powell, a currency strategist at IDEAglobal in New York. ``The U.S. is slowing down, while the euro zone is still strong. We are in a state of dollar weakness.''
The dollar fell to $1.3811 per euro at 9:22 a.m. in New York, after earlier touching $1.3816, the lowest since Aug. 9, from $1.3768 on Sept. 7. That compares with the record low of $1.3852 reached July 24. The U.S. currency bought 113.78 yen, from 113.38. The euro traded at 157.18 yen, from 156.10.
The U.S. dollar index comparing the currency with its six primary peers, including the pound and yen, fell to as low as 79.814, the weakest in 15 years, from 79.959 on Sept. 7.
``The dollar has gone from being a safe-haven currency to a U.S.-centric currency,'' said Mitul Kotecha, head of currency strategy at Calyon. ``The issues with the jobs numbers and weaker data in general have raised a lot of concerns about the impact of U.S. growth, and that has hit the dollar.''
U.S. nonfarm payrolls decreased by 4,000 in August from a revised gain of 68,000 a month earlier, the Labor Department in Washington said on Sept. 7. It compared with the median forecast of a 100,000 increase in a Bloomberg News survey of 88 economists. The unemployment rate held at 4.6 percent.
Interest-rate futures show a 70 percent chance the Fed will cut borrowing costs to 4.75 percent from 5.25 percent at its Sept. 18 meeting, up from 46 percent a week ago.
Investors are increasing bets the ECB will lift borrowing costs by year-end from 4 percent. The implied yield on the December futures contract rose 4 basis points, or 0.04 percentage point, to 4.49 percent. The contract settles to the three-month interbank offered rate for the euro, which has averaged about 16 basis points above the ECB key rate since 1999.
U.S. Versus Germany
The difference in yields between two-year U.S. Treasuries and comparable-maturity German bunds fell 13 basis points last week. German securities had a higher yield than their U.S. counterparts during a second day for the first time since 2004.
The dollar extended its gains versus the yen after Fed Bank of Atlanta President Dennis Lockhart said data now show job growth started weakening in June and declined to stick with his assessment that there are no ``conclusive'' signs of a slowdown beyond housing.
San Francisco Fed President Janet Yellen will speak at 8 a.m. San Francisco time. Dallas Fed President Richard Fisher will speak at noon San Antonio, Texas, time. New York Fed Governor Frederic Mishkin speaks on the economic outlook at 7:30 p.m. in New York.
By Bo Nielsen