The dollar strengthened to a two-year high against the euro as investors sought safety after U.S. employers added fewer jobs in June than forecast.
The greenback rose versus all of its 16 most-traded counterparts except the yen and Mexico’s peso as the last U.S. employment report before the Federal Reserve’s next meeting showed the jobless rate stayed unchanged at 8.2 percent. The euro also fell as a slide in Spanish industrial production added to concern Europe’s debt crisis will worsen.
“This report confirmed a slowdown that we’ve seen in the last month from the U.S. and global business sectors,” Dan Dorrow, head of research in Stamford, Connecticut, at Faros Trading LLC, said of the jobs data. The firm executes currency transactions on the behalf of hedge funds and institutional clients. “The overarching issue that’s led to dollar strength today is pervasive fear that there aren’t enough policy bullets to address the global slowdown.”
The dollar appreciated 0.8 percent to $1.2291 per euro at 5 p.m. New York time, extending its weekly gain to 3.1 percent, the most since September. It touched $1.2260, the strongest level since July 2010. The yen gained 0.3 percent to 79.66 per dollar and climbed 1.2 percent to 97.89 per euro.
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six U.S. trade partners, advanced as much as 0.8 percent to 83.431. It was the highest since June 1, exceeding the 82.950 the gauge touched yesterday after European Central Bank President Mario Draghi said the euro bloc still faces risks after policy makers cut their benchmark interest rate to a record 0.75 percent. The index rallied 2 percent this week, the most since December.
Commodity-linked currencies dropped, led by the South African rand, which slid versus all of its 16 most-traded peers. Stocks and commodities fell, with the Standard & Poor’s 500 Index (SPX) losing 0.9 percent and the S&P GSCI Index of 24 raw materials tumbling 2.4 percent.
Payrolls increased by 80,000 jobs after a revised gain of 77,000 in May, Labor Department data showed today in Washington. Economists projected an increase of 100,000, according to the median estimate in a Bloomberg News survey. Private employment, which excludes government agencies, grew 84,000 in June, the weakest in 10 months.
“There are two forces going on with this number,” John Shin, senior Group-of-10 foreign-exchange strategist at Bank of America Corp. in New York, said in a telephone interview. “One is the natural risk-off, dollar-positive sentiment. Counteracting that is that a weak number further implies more quantitative easing in the fall, which is dollar-negative.”
The greenback has gained 5.5 percent against the euro this year as investors sought havens amid speculation Europe’s financial turmoil was worsening and U.S. growth was slowing. The dollar fell 2.4 percent in June against the common currency on speculation European leaders were tackling their debt crisis.
The euro weakened earlier as Spanish industrial production adjusted for the number of working days fell 6.1 percent in May from a year earlier, after an 8.3 percent decline in April, the National Statistics Institute said in Madrid. Spain’s recession probably intensified in the second quarter as Europe’s debt crisis worsened, the central bank said on June 27.
The Spanish 10-year yield rose as much as 26 basis points, or 0.26 percentage point, to 7.04 percent after jumping 37 basis points yesterday.
“Downside risks to the euro-area economic outlook have materialized,” ECB President Mario Draghi said yesterday after cutting the main refinancing rate and reducing interest on overnight deposits to zero.
The euro slumped 7.8 percent over the past year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar gained 8.8 percent, and the yen climbed 8.9 percent.
U.S. Treasuries rose today, pushing 10-year note yields down to as low as 1.55 percent, the least in a month, as investors sought havens.
Higher-yielding currencies fell. South Africa’s rand slid 1.4 percent to 8.2591 per dollar, and Norway’s krone dropped 1.1 percent to 6.1165. The Australian dollar lost 0.7 percent to $1.0213, and New Zealand’s dollar weakened 0.7 percent to 79.77 U.S. cents.
The pound rose for a third day against the euro as traders bet the Bank of England’s bond-purchase program will weigh less on the currency than the policies of other central banks. It gained 0.6 percent to 79.34 pence.
The Mexican peso gained 0.2 percent to 13.3909 per dollar after weakening earlier as much as 0.7 percent. The U.S. is Mexico’s biggest trade partner.
The Fed will issue its next policy statement on Aug. 1 after a two-day meeting. The central bank pumped $2.3 trillion into the financial system from 2008 to 2011 to support the economy in two rounds of debt purchases under quantitative easing. It’s shifting $667 billion of short-term debt in its holdings to longer-term debt to cap borrowing costs, a program it expanded last month, and has kept its benchmark interest rate at zero to 0.25 percent since December 2008.
Chairman Ben S. Bernanke said June 20 after the last policy meeting that the Fed is prepared to consider additional steps to spur growth and employment, including further asset purchases.
Policy makers last month lowered their forecasts for growth and raised their predictions for unemployment in each of the next three years. They now see 1.9 percent to 2.4 percent growth in 2012, down from their April forecast of 2.4 percent to 2.9 percent. The jobless rate will end the year at 8 percent to 8.2 percent, up from 7.8 percent to 8 percent in April.
China cut its key interest rate yesterday for the second time in a month, and the Bank of England expanded its asset- purchase stimulus program by 50 billion pounds ($78 billion) to 375 billion pounds.
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