Dollar Tumbles as Below-Forecast Payrolls Gain Trims Fed View

Washington (Jan 11)  The dollar had the biggest weekly drop against the yen in almost three months as U.S. payrolls rose less than forecast in December, fueling concern the Federal Reserve will slow reduction in bond-buying.

“The employment report turned out to be the largest headwind of the year for the very large short position in yen,” Neil Azous, founder of Rareview Macro LLC, a Stamford, Connecticut-based advisory and research firm, said in an interview referring to bets the yen would decrease in value. “The theme to start the year has been a stronger yen and lower U.S. yields.”

The dollar fell 0.7 percent to 104.18 yen this week in New York, the biggest drop since the five days eneded Oct. 18. It touched 105.44 on Jan. 2, the strongest since October 2008. The U.S. currency weakened 0.6 percent to $1.3670 per euro. The yen added 0.1 percent to 142.39 per euro.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major counterparts, decreased 0.2 percent to 1,023.77, after touching 1,030.42 on Jan. 9, the highest since Sept. 9.

The benchmark 10-year note yield fell 14 basis points, or 0.14 percentage point, to 2.86 percent this week. The two-year yield dropped three basis points to 0.37 percent.

‘Bumpy Ride’

Minutes of the central bank’s last meeting released, released Jan. 8, showed officials saw diminishing economic benefits from bond-buying and expressed concern about risks to financial stability.

The Federal Open Market Committee will trim buying in $10 billion increments over the next seven meetings before ending them in December, according to the median forecast in a Bloomberg News survey on Dec. 19.

“The basic themes the market started the year with, related to solid U.S. growth inclusive of bond normalization and selective USD strength, are likely to stand the test of time,” Alan Ruskin, the New York-based global head of Group of 10 foreign-exchange at Deutsche Bank AG, the world’s largest currency trader, wrote in a client note. The payrolls “number will ultimately be seen as providing better entry levels for these core views, but this is obviously going to be a bumpy ride.”