CURRENCIES: Dollar Index Dips After Job Data Keeps Fed On Hold

By Nick Godt The U.S. dollar edged lower against the yen Friday, and traded nearly flat against the euro, after a surprise jump in the U.S. jobless rate to over 10% affirmed the Federal Reserve would stick to an ultraloose monetary policy but also held back stocks and other risk assets. "Fed policy is likely on hold for a very long time," said RDQ Economists John Ryding and Conrad DeQuadros in emailed comments after the Labor Department said the jobless rate jumped to 10.2% in October, more than economists anticipated, and payrolls contracted. "We expect the dollar to suffer against other currencies, gold, and commodities as a consequence," they wrote. Exceptionally low rates in the U.S. have fueled a dollar carry trade, whereby investors borrow dollars to invest in riskier assets, such as stocks and commodities. The dollar index (DXY), a measure of the greenback against a trade-weighted basket of rival currencies, fell to 75.653, down about 0.1%. For the week, the dollar index has lost 0.7% from 76.30 last Friday. The dollar slumped against the Japanese yen, another low-yielding currency, buying 89.79 yen from 90.73 in late North American trade Thursday. The euro, which had advanced against the U.S. dollar after the unemployment report, recently traded lower at $1.4853 from $1.4874 late in the prior session. Providing support to the U.S. dollar, U.S. stocks struggled to advance after opening lower. The S&P 500 (SPX) was less than a point lower at 1,066, while the Dow Jones Industrial Average (DJI) traded at 10,006, up less than 1 point. "I think the main driver is still risk," said Robert Lynch, currency strategist at HSBC Bank USA. "The jobs data, at the margins, has put a little pressure on equities and risk assets. That's making upside difficult for currency pairs like euro-dollar," he said. In recent months, the dollar has tended to fall when investors embrace risk, buying stocks and currencies from emerging markets and even Europe, where interest rates are higher. The U.S. dollar generally rises when investor seek a safe haven. The U.S. economy shed 190,000 jobs last month, lifting the unemployment rate above 10% for the first time in 26 years, the Labor Department said. The report also revised statistics for September and August. Economists surveyed by MarketWatch, were looking for a decline in nonfarm payrolls of 150,000 and for the unemployment rate to rise to 9.9%. Rate hike a way's off Bets the Federal Reserve will eventually lift interest rates from near 0% fell slightly after the report. Fed fund futures traders anticipate the Fed will raise its target rate by mid-2010 to 0.31%, compared to a 0.33% rate before the data. On Wednesday, the Fed left its target rate in a range of between 0% and 0.25%, and repeated its commitment to keep rates low for the foreseeable future, citing slack in the economy and little reason to worry about inflation. Also Friday, the Australian dollar bought 91.71 U.S. cents, up 0.7%. Australia's central bank raised its inflation and economic-growth forecasts overnight and hinted at more interest-rate tightening ahead. The British pound rose to $1.6586 from $1.6581. On Thursday, the dollar fell against the yen while gaining on the euro, with traders playing off the European Central Bank's decision to leave euro-zone interest rates unchanged as well as the Bank of England's move to boost the size of its quantitative-easing program.