Dollar Up vs Euro, Down vs Yen After Jobs Data

The dollar rose versus the euro and fell against the yen Thursday as a report showing a larger-than-expected drop in U.S. non-farm payrolls in June, renewed concerns about the economic recovery's pace.

U.S. Treasury bonds rose and U.S. stocks fell as the data raised risk aversion, enhancing the dollar's safe-haven appeal. Analysts said demand for the euro also fell after European Central Bank President Jean-Claude Trichet said euro-zone activity would likely remain weak for the rest of the year.

The ECB left its benchmark refinancing interest rate at a record low of 1 percent, as expected. Trichet said stabilization in 2010 would be followed by a recovery.

"The weak jobs report reinforced a trend already in place in the forex market prior to the release, that is, that the dollar was oversold," said Camilla Sutton, a currency strategist at Scotia Capital, in Toronto.

"Euro/dollar has been stuck in a range and with weak data like today's, the euro will not get the support to break through $1.42," she added.

The euro was down at near $1.39, retreating from $1.4201 hit Wednesday, its highest since early June. The dollar slipped to about 96 yen , after trading as high as 96.89 yen before the jobs report.

Jobless Rate Near 26-Year High

U.S. employers cut 467,000 jobs in June, far more than expected, while the unemployment rate rose to almost a 26-year high of 9.5 percent, the government said. The report showed the country's labor market is still struggling with a deep recession.

"If you were banking on the U.S. driving a vigorous recovery, think again," Alan Ruskin, chief international strategist at RBS, said in a note. "The employment report can largely be taken at face value, and the face value story is a labor market that is not improving nearly as rapidly as the May data suggested."

Another report showing new orders for U.S. manufactured goods jumped 1.2 percent in May had limited impact on the foreign exchange markets.

Traders said volume is expected to dwindle this afternoon before the three-day weekend for the Independence Day holiday in the United States. Financial markets will be closed on Friday and will re-open on Monday.

China Lightens Up a Bit

The dollar also benefited from a Chinese Foreign Ministry official's comments, which weakened speculation about diversification of currency reserves.

On Wednesday, the U.S. currency fell to a three-week low against the euro after G8 sources told Reuters that China had asked for a debate on proposals for a new global reserve currency at next week's Group of Eight summit in Italy.

On Thursday, though, Vice Foreign Minister He Yafei said it would be "normal" for the issue to be raised at next week's meeting, but he had not heard that Beijing had requested such a discussion.

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"The dollar has been a little bit underpinned by the Chinese policy-makers taking back their rhetoric about the global reserve currency," said Samarjit Shankar, director of global foreign exchange strategy at the Bank of New York Mellon, in Boston.

Elsewhere, the Swedish crown tumbled after Sweden's central bank surprised markets by cutting its key repo rate by 25 basis points to 0.25 percent on Thursday. The euro rose more than 1 percent on the day to around 10 crowns, Reuters data showed.

The Swiss franc hit the day's low of 1.5257 per euro from around 1.52 after a Swiss National Bank official said the central bank was prepared to continue interventions to stem the domestic currency's strength.

"Central banks across the globe are becoming increasingly more vocal about sharp gains in their currencies," Scotia Capital's Sutton said. "Their participation in the forex markets is likely to increase."

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