Dollar rises after jobs report; outlook uncertain

By Wanfeng Zhou

NEW YORK (BestGrowthStock) – The dollar could be near a bottom versus the euro and yen after strong jobs data raised confidence in the U.S. economy, but the greenback is set to remain weak against high-yielding and emerging market currencies.

The dollar soared on Friday after data showed U.S. employers added 151,000 jobs in October, blowing past expectations of a 60,000 rise and marking the fastest pace of hiring since April.

The report followed two days after the Federal Reserve committed to inject $600 billion to boost the flagging recovery and left some investors open to the possibility the dollar may have carved a bottom against the euro and yen, despite the prospect of more monetary easing.

Any signs the U.S. economy is gaining momentum could prompt investors to close out some of their massive short dollar bets accumulated in recent weeks, lifting the greenback.

Data from the Commodity Futures Trading Commission on Friday showed the value of the dollar’s net short position stood at $24.53 billion in the week ended November 2, slightly up from a net short of $23.11 billion the previous week.

“It is very unclear if the U.S. dollar will sustain this weakness against the yen or euro,” said Michael Hasenstab, portfolio manager of Templeton Global Bond Fund and co-director of Franklin Templeton Fixed Income Group’s international bond department.

“It is important to note that within the G-3 economies the U.S. is not alone in its easy monetary policy,” he added. “The European Central Bank continues to provide large amounts of liquidity within its financial system to address bank and sovereign credit vulnerabilities, and Japan continues to embark on equally aggressive monetary easing.”

Franklin Templeton Fixed Income Group has more than $280 billion in assets under management.

In late trading, the euro was down 1.2 percent at $1.4031, a day after hitting a 9-1/2-month high of $1.4283 on trading platform EBS.

“We’re having indications that the economy is turning in the right direction. The U.S. is regaining some traction,” said Thomas Kressin, senior vice president and lead portfolio manager of Pimco’s Global Investor Series FX Strategy Fund in Munich, Germany.

The currency fund has assets under management of about 100 million euros (roughly $140 million).

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Concerns about the euro have also risen after Ireland’s austerity budget prompted a widening in peripheral euro zone bond spreads.

Pimco’s Kressin said “it’s just a matter of time before the market refocuses on the domestic issues in the region.”

Investors in the options markets also turned increasingly bearish on the euro. The euro/dollar risk reversal, a barometer of currency sentiment, has indicated a growing negative view on euro/dollar and the euro’s “put” bias has deepened. On Friday, euro/dollar risk reversals traded at -1.5, with a bias to euro puts, down from about -0.55 in mid-October.

But Jonathan Xiong, director and global investment strategist at Mellon Capital Management, said his firm recently reversed its bearish view on the euro.

“We’re now fairly bullish on the euro. It’s actually one of our largest overweight positions,” he said. “The U.S. is heading down a very inflationary path. But in the euro zone, they’re holding up the currency value fairly well because they’re controlling inflation.”

Xiong is part of a team that oversees $28.6 billion in assets in San Francisco.

The dollar rose 0.7 percent against the yen to 81.31. The Bank of Japan concluded a policy review without easing further.

While the dollar’s fortunes may improve somewhat versus the euro and yen, analysts expect to see it continue to weaken versus emerging market and high-yielding currencies such as the Australian dollar.

“Continued and aggressive quantitative easing by the U.S. is one of the factors that will likely lead to a further fall of the U.S. dollar versus the currencies of countries that are not pursuing such lax monetary policy, such as those in non-Japan Asia,” Hasenstab said.

(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by )

Dollar rises after jobs report; outlook uncertain