Friday, 6 Aug 2010

Poor Payrolls Report Sinks the Dollar

Following disappointing U.S. employment data, markets sold off as the dollar sank to a year low versus the yen. The greenback was down on the day against the majors as equities and spot crude oil plunged given the negative data from the U.S. economy. The weak jobs report could signal further action by the Federal Reserve to weaken U.S. monetary policy.

U.S. non-farm employment data was released with less than expected results. The most tracked data piece of the report was the overall job losses of 131k. Economists had predicted results of a drop of only 63k jobs in the month of July. The unemployment rate held steady at 9.5%.

The buck dropped to a low on the day at 85.01 yen after the release of the negative employment numbers. This is the lowest the pair has traded since November of 2009. The USD/JPY opened the day at 86.02.

The euro was also stronger versus the dollar as the pair rose to a high of 1.3333, just short of the resistance level at 1.3350 that was set in May.

Equities also tumbled following the release of the jobs data. At one point in the day the Dow Jones Industrials Average was down 1.6% but came back and finished the trading session down only 0.20%.

The poor jobs report is a setback for the U.S. economy and is yet another sign that the U.S. is struggling to pull itself out from a deep economic recession. This may be the signal to the Federal Reserve to begin another round of monetary policy easing in order to stimulate the U.S. economy. Any signal of further easing of monetary policy or delays in monetary policy tightening will result in more losses for the dollar.