The US dollar lost out to the euro after Friday’s US jobs report suggested that some traders might have overplayed a stronger US recovery from the COVID-19 pandemic.
The euro rose 0.7 percent to US$1.2042 in its biggest daily gain in more than two months after the report, which Bannockburn Global Forex strategist Marc Chandler said did more to force short-term traders to adjust long-dollar and short-euro positions than it changed the economic outlook for a US recovery that is stronger than peers.
The US dollar index of a basket of currencies fell 0.6 percent to 91, but still held a weekly gain of 0.5 percent.
“This forces some of the late dollar-longs out,” Chandler said. “It doesn’t really change what to expect for Q1 GDP in the US. Market positioning is a different story,” he said.
The report showed that US employment growth rebounded less than expected last month and job losses the prior month were deeper than initially thought, strengthening the argument for additional relief money to aid the recovery from the COVID-19 pandemic.
The greenback was off 0.1 percent against the yen at ￥105.36, but was up 0.6 percent for the week. The more modest change against the yen was consistent with yields on longer-term US, Chandler said.
In Taipei, the New Taiwan dollar on Friday fell against the greenback, losing NT$0.008 to close at NT$28.390, up 0.08 percent for the week.
US Treasuries edging up in reaction to the report gives support for additional government spending to stimulate the economy. The spread between yields on two-year and 10-year Treasuries, seen as an indicator of economic expectations, widened to as much as 106 basis points and the most since May 2017.
US President Joe Biden cited the report as he and his Democratic allies pushed ahead with steps toward their US$1.9 billion COVID-19 relief package, including a vote in the US Senate and another expected in the US House of Representatives.
The moves aim to secure the spending before special unemployment benefits expire on March 15. Expectations for more stimulus also drove global stocks to a new record on Friday, as measured by MSCI’s all-country world index.
Aggressive stimulus fuels expectations of higher inflation and adds to the market’s interest in new consumer price data coming next week, analysts at ING wrote late on Friday.
The impact on the US dollar could come through what the price data say about interest rates after subtracting inflation, they said.
Analysts and investors have been weighing whether US dollar strength this year has been a temporary reaction to a 7 percent loss last year or is a longer-lasting shift away from dollar pessimism.
The US dollar index is still up 1.2 percent this year. Its rise has been supported by higher longer-term Treasury yields, which prompted traders to position for massive fiscal spending.
Additional reporting by CNA, with staff writer
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