The greenback increased the most since September of last year after U.S. job growth fell short of forecasts and the European Central Bank said the region’s economy still faces risks. The world’s largest economy added a net 80,000 nonfarm payrolls in June, below market forecasts for a gain of around 90,000 -100,000. April figures were revised to 68,000 from 77,000 nonfarm payrolls, whilst May’s numbers were revised to 77,000 from 69,000. Private employment which excludes government agencies increased 84,000 in June, the weakest growth seen in 10 months.
Investors reacted to the numbers by selling equities and taking up safe-haven dollar positions over fears the U.S. economy continues to show signs of cooling. Speculation increased that the Federal Reserve may take further steps to boost growth, including a 3rd round of debt purchases under quantitative easing. The U.S. central bank opens a two-day policy meeting on July 31st and with no monetary decision in the US until Aug 1st, it was monetary policy decisions outside of the U.S. sent investors racing to the dollar and selling stocks worldwide. The European Central Bank cut its benchmark interest rate 25 basis points to 0.75% whilst a Bank of England decision to inject £50 billion into the economy via stimulus measures followed by interest rate cuts in China also fueled the risk off trading session.
The USD reached a two year high against the Euro as concerns grew that the ECB cut in interest rates to a record low won’t be enough to stem the euro bloc’s debt crisis. The USD rallied 3.1% to $1.2291 per euro yesterday in New York, from $1.2667 on June 29th. The jump was its largest since the five days ended Sept. 9th. It reached $1.2260, the strongest level since July 2010. The 17-nation currency depreciated 3.1% to 97.89 yen in the pair’s largest weekly drop since April 6th.
Gold, the traditional hedge to the US Dollar, ended the trading session badly, down 1.59%, trading at 1583.85 a troy ounce having hit a low 1,576.55 a troy ounce and a high of 1,609.85 a troy ounce early during the session. Gold futures were likely to test support on Monday at 1,551.35 a troy ounce, the low from June 29, and test resistance at 1,624.05, the high from July 5. Gold and the U.S. dollar often trade inversely from one another and the dollar saw more demand from headlines breaking overseas.