Dollar drops steeply, as downbeat jobs report causes uncertainty about Fed rate hike timing

The dollar fell steeply after a U.S. labor report dampened confidence that the Federal Reserve is moving closer to raising interest rates.

The greenback slid against most of its major peers as the release showed companies added 126,000 jobs in March, the fewest since December 2013.

The euro rose to $1.1016, from $1.0870 ahead of the numbers, 1.3% higher on the day on a Good Friday holiday and the highest in a week.

The dollar slid against the Japanese currency to ¥118.78 from ¥119.65 beforehand, down 0.8% for the day.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, tumbled 0.7 percent to 1,182.61 as of 8:45 a.m. in New York.

The payrolls growth was lower than the most pessimistic forecast in a survey conducted by Bloomberg and followed a 264,000 gain a month earlier that was smaller than initially reported, the Labor Department in Washington said. The median forecast in a Bloomberg survey of economists called for a 245,000 advance. Average hourly earnings rose 2.1 percent from a year earlier.

The jobs data should do little to help the dollar reverse its recent decline against rivals, the Wall Street Journal says referring to Richard Cochinos, head of Americas developed-market currencies strategy at Citigroup Inc.

“This is one more negative data print; it adds to the negative momentum in the dollar,” Mr. Cochinos said.

“The bigger problem for the dollar is that whatever expectations were on June are now moved to September. But people will now focus on first-quarter growth as the next major data risk, and they’ll see mostly negative quarterly data and have lower expectations for growth in the quarter.”

“There’s quite a bit of concern about this being a weak number,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said by phone before the data was released.

“The Federal Reserve has turned to a fully data-dependent stance and as a result we know that the Fed officials will be looking very very closely.”

The U.S. central bank is scrutinizing incoming data as it looks to increase borrowing costs for the first time in almost nine years. The Fed removed a commitment to being “patient” on rates at its March meeting, even as it slashed projections for the target rate this year.

Policy makers meet again at the end of April. Richmond Fed President Jeffrey Lacker said this week that there’s a “strong” case to raise rates at the central bank’s June 16-17 meeting.

On Thursday a Morgan Stanley index indicated that the central bank will increase its benchmark interest rate, the target for overnight loans between banks, from near zero in about 8 months.

The dollar’s plunge should continue into next week, but one market data point is likely to do little to shift the dollar’s longer-term upward trajectory, Mr. Cochinos said, as the Fed eventually will raise interest rates while other central banks continue to ease monetary policy in ways that weaken their currencies.