July 8 (Bloomberg) -- The dollar dropped the most in a month against the yen after the June payrolls report showed employers added the fewest jobs in nine months and the unemployment rate increased to the highest level this year.
The yen and Swiss franc gained versus all of the other major currencies as signs of U.S. weakness spurred demand for a refuge. Canada’s dollar and Mexico’s peso tumbled on concern the nations’ largest trading partner is faltering. The euro slid as regulators sought to contain debt turmoil with more stringent disclosure among lenders and after Italian bank stocks sank.
“The number was not strong, and the market was caught on the wrong foot,” said Lane Newman, director of foreign exchange at ING Groep NV in New York. “With people not wanting to be in the dollar, people are buying things like Swiss franc and yen.”
The dollar decreased 0.8 percent to 80.64 yen at 5 p.m. in New York, from 81.25 yesterday, a weekly drop of 0.2 percent. The greenback earlier fell 0.9 percent, the most since June 3, when it tumbled as much as 1.1 percent on disappointing May payrolls figures. The euro fell 0.7 percent to $1.4265, from $1.4364. The shared currency dropped 1.4 percent to 115.03 yen, from 116.70.
Payrolls expanded by 18,000 in June after a revised increase of 25,000 in the previous month, the Labor Department reported today. The median forecast of 85 economists in a Bloomberg News survey was for 105,000 more jobs. The unemployment rate unexpectedly increased to 9.2 percent.
“This number is so horribly below what people expected,” said Boris Schlossberg, director of research at the online currency trader GFT Forex in New York. “Yields in the U.S. are going to remain very low for much longer than the market anticipated, and that is going to weigh on the dollar.”
Treasury 10-year note yields fell 11 basis points, or 0.11 percentage point, to 3.03 percent after touching 3.01 percent, the lowest level since June 28.
The dollar is the worst performer this year among 10 developed-nation currencies, according to Bloomberg Correlation Weighted Currency Indexes, having fallen 5.6 percent. The euro has increased 1.3 percent, and the yen had dropped 5 percent.
Mexico’s peso declined for the first time in three days versus the U.S. dollar, depreciating 0.7 percent to 11.6256, and fell 1.5 percent to 6.935 yen. Mexico’s central bank held its overnight rate at 4.50 percent for a 20th straight meeting.
The Canadian currency slid 0.4 percent to 96.27 cents versus the greenback. It earlier touched 95.66 cents, the strongest level since May 11, after the government reported that Canada’s employers added more jobs last month than economists forecast. Canada’s dollar dropped 1.2 percent to 83.77 yen.
“The yen is obviously the big winner, and the commodity currencies are slipping, especially the Canadian dollar,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York.
Futures on crude oil, Canada’s biggest export, dropped 2.3 percent to $96.45 a barrel. The Standard & Poor’s 500 Index decreased 0.7 percent.
The Swiss franc appreciated 0.9 percent to 83.69 centimes versus the dollar and gained 1.6 percent to 1.1937 against the euro. The franc rallied to a record 1.1806 versus the shared currency on June 24.
The New Zealand dollar rose 0.5 percent to 83.78 U.S. cents after touching the record high of 83.82. The Australian dollar dropped 0.1 percent to $1.0763.
Obama on Jobs
President Barack Obama said today’s job report shows that “we still have a long way to go and a lot of work to do to give people the security and opportunity they deserve.” Obama is summoning top congressional Republicans and Democrats to a July 10 meeting at the White House to begin “hard bargaining” on a broad debt-reduction deal.
The euro fell 1.8 percent this week versus the dollar, its biggest drop in almost a month, as European regulators tried to end the region’s banking crisis by forcing firms to publish details of capital shortfalls in a more stringent and detailed set of stress tests.
The cost of insuring against default on Portuguese, Irish and Greek government debt rose to records. Contracts on Portugal climbed 38 basis points to 1,016, signaling a 58 percent probability of default within five years, according to CMA prices in London.
Italian banks, including UniCredit SpA and Intesa Sanpaolo SpA, tumbled in Milan, spurring Bank of Italy Governor Mario Draghi to say he’s certain the nation’s lenders will pass European stress tests by a “significant” margin.
“There’s a lot of concern about the Italian banks,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. “This is something that’s weighing on the euro. It gets back to the heart of the euro-zone debt crisis.”
Lenders will have to disclose capital levels, estimates for profitability in 2011 and 2012 and their holdings of sovereign debt in the July 15 results, the London-based European Banking Authority said in a statement today.
--With assistance from Jim Brunsden in Brussels and Sonia Sirletti in Milan and Abigail Moses in London. Editors: Dennis Fitzgerald, Greg Storey
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