The US dollar tumbled against the euro and the yen yesterday after mixed signals about the US labour market quashed expectations the Federal Reserve would start reducing its bond purchases as early as next month.
US employers slowed their pace of hiring last month, with job growth of 162,000, the labour department said. That was below the median forecast in a Reuters poll of 184,000. The jobless rate fell to 7.4 per cent.
Expectations the Fed might start winding down its stimulus programme as early as next month have buoyed the US dollar this year. Those hopes have faded a bit in recent weeks, and on Wednesday the Fed offered no indication of a near-term move.
"Any misconceptions that the Fed was looking to taper in September have been blown out of the water … after the non-farm payrolls number disappoints to the nth degree," said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange. "The US economy remains on a shaky foundation in terms of both GDP and employment. Until the foundation is strengthened, the Fed will be forced to continue its easing bias."
The government also cut its previous estimates for hiring in May and June. While gains in employment fuelled some of the decline in the jobless rate, the labour force shrank during the month.
The jobs report came a day after weekly jobless claims and manufacturing data showed the economy was recovering steadily. The robust data had pushed US yields higher and widened the gap over German, British and Japanese bonds and buoyed the dollar.
"This disappointing payroll number will undo some of the positive market momentum on the economy and the dollar from yesterday's strong ISM and jobless claims reports and justify the Fed's caution on quantitative easing," said Joseph Trevisani, chief market strategist at WorldWideMarkets, referring to the Institute for Supply Management's robust reading on its factory index for last month.