The dollar fell against most of its rivals Friday after a better-than-expected U.S. jobs report soothed nerves that had been jangled by worries over the pace of the recovery, leading investors to abandon the safety of the greenback and lean into higher-yielding currencies.
Disappointing figures from the U.S. service sector took some shine off currencies closely tied to global growth, but optimism ruled the day, with the growth-sensitive Australian and Canadian dollars gaining strongly against the U.S. dollar.
"The data is a reminder that the U.S. recovery is still tepid, fragile, but intact and muddling along," said Alan Ruskin, global head of G10 foreign exchange strategy at Deutsche Bank in New York.
Late Friday, the euro was at $1.2896 from $1.2821 late Thursday, according to EBS via CQG. The dollar was at Y84.43 from Y84.21 after having gained to Y85.23 in the wake of the employment data. The euro was at Y108.87 from Y107.96. The U.K. pound was at $1.5470 from $1.5388. The dollar was at CHF1.0168 from CHF1.0128.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 82.010 from 82.451.
The worse-than-expected service-sector data contrasted with the stronger-than-expected U.S. labor report, which showed job losses continued to mount in the U.S. economy in August, though at a more modest pace than expected. Nonfarm payrolls fell by 54,000 last month, better than the loss of 110,000 economists had predicted in a Dow Jones Newswires survey.
The yen fell sharply against its major rivals, including the dollar and euro, in the wake of the jobs report, but moderated its losses after the nonmanufacturing data took some shine off riskier assets.
The U.S. nonmanufacturing sector expanded at a much slower pace last month, according to data released by the Institute for Supply Management, missing economists' expectations.
Particularly worrying to investors concerned over the pace of the U.S. recovery was the drop in nonmanufacturing employment, which dipped into contractionary territory in August.
The euro mustered a modest gain against the dollar, but is lately restrained by divergent cross-currents for both currencies, said Sebastien Galy, currency strategist at BNP Paribas in New York.
To see the euro's performance against the dollar, please see:
http://www.dowjoneswebservices.com/chart/view/4538
Recent euro-zone economic data have surprised to the upside, but concerns over the region's sovereign debt issues still linger in the background. A spate of positive U.S. data this week has eased concerns over the pace of the U.S. recovery, but worry over continued struggles in the housing and labor markets means the dollar also is not a clear winner.
"The euro-dollar [pair] is a hard one for an investor," Galy said. "You've tried the euro, you've tried the dollar. You've had a little bit of good news and bad news for both. They can't really differentiate in the end which could get worse between the two [economies]," Galy said.
Meanwhile, investors increased their bets against the euro for the third week in a row, according to data released Friday. Net speculative bets against the euro were at 25,600 with a value of $4.2 billion in the week ended Tuesday, compared with the previous week's data that showed 21,600 net short contracts with a value of $3.6 billion, according to a Scotia Capital analysis of the weekly Commitments of Traders report released by the Commodity Futures Trading Commission on Friday afternoon.
Separately, a state-run newspaper reported Friday China's foreign exchange reserves allocation, which some had considered a state secret. The reserve allocation is close to the global average, which is around 65% in the U.S. dollar, 26% in the euro, 5% in the British pound and 3% in the Japanese yen, the state-run China Securities Journal reported, citing an unnamed government official.
With the ICE Dollar Index weakening, Deutsche Bank's PowerShares U.S. Dollar Index Bearish exchange-traded fund was up 0.46% from late Thursday, while its PowerShares U.S. Dollar Index Bullish was down 0.50%. The two exchange-traded funds are based on Deutsche Bank currency futures indexes, whose composition mirrors that of the ICE's Dollar Index.
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