Dollar weathers weak US jobs report

[NEW YORK] The dollar initially sank Friday after an unexpectedly dismal US jobs report suggested the Federal Reserve may wait to raise interest rates until next year, but clawed back losses.

The Labor Department's September report showed stalling job growth in the past two months, stagnating wages, and the participation rate falling to a 38-year low, dealing a blow to market hopes for the central bank's Federal Open Market Committee to lift rates in October.

"Nearly all the indicators that Chair (Janet) Yellen and other FOMC participants have recently cited as important in assessing labor market conditions showed some degree of deterioration," said Bob Eisenbeis, chief monetary economist at Cumberland Advisors.

"Markets are now likely to downgrade any likelihood of a policy move in 2015." The euro rose above US$1.13 after the report but fell to US$1.1219 in late-afternoon trade.

"By the end of the North American session, the greenback clawed back its losses on the premise that, of the large number of Federal Reserve officials scheduled to speak next week, many will continue to throw their support behind 2015 tightening," said Kathy Lien, head of foreign exchange strategy at BK Asset Management.

She noted the price action was all due to investors' appetite for US dollars because eurozone wholesale inflation data had come in worse than expected.

Lien said that if there were no revisions in next month's job report, and if job growth remains below 200,000 in October and November, the Fed's plan to lift its near-zero federal funds rate by year's end would be out of the question in December.

Rate hike expectations have collapsed with Fed funds futures now pricing in only 30 per cent chance of tightening before the end of the year compared to a 45 per cent chance before the report.

AFP