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US Dollar Faces Setback as Job Growth Cools, Unemployment Rises

H.S. Borji
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US Dollar Faces Setback as Job Growth Cools, Unemployment Rises

The US dollar declined against a basket of currencies Friday, as mixed employment data pointed to persistent slack in the labour market that could give the Federal Reserve the impetus to keep interest rates near zero for a longer period.

The US dollar index, a weighted average of the dollar’s performance against six commonly traded rivals, declined 0.17 percent to 81.31.

Demand for the greenback has been steadily rising for three weeks, as upbeat data and a stronger labour market recovery fueled speculation the Federal Reserve may raise interest rates sooner than previously estimated.

The US economy added 209,000 nonfarm payrolls last month, following an upwardly revised gain of 298,000 in June, the Labor Department reported today in Washington. Economists forecast a sharper increase, with some estimates ranging from 230,000 to 271,000.

The unemployment rate unexpectedly rose from 6.1 percent to 6.2 percent, as more people entered the labour market. However, the civilian participation rate was little changed at 62.9 percent.

Despite the mixed reading, July’s growth rate pointed to underlying momentum in the labour market. July was the sixth consecutive month the US economy added more than 200,000 jobs – the first stretch of its kind since 1997.

Average hourly earnings were unchanged at $24.45 in July. Compared to the previous 12 months, average earnings were up 2 percent.

Earnings growth is one of several indicators the Federal Reserve is closely monitoring to determine the level of slack in the economy, which according to the central bank remained “significant.”

The Fed earlier this week voted to reduce the pace of its record bond buying program by another $10 billion, but signaled it would be patient in lifting interest rates, as labour market conditions remained well below target levels.

In other data, US manufacturing output increased sharply in July, the Institute for Supply Management reported today. ISM’s gauge of manufacturing activity rose from 55.3 to 57.1, topping estimates.

Separately, a government report showed construction spending unexpectedly declined in June, falling 1.8 percent.

The US dollar declined against the yen, as the USDJPY tumbled 0.35 percent to 102.41. The pair faces initial support at 102.37 and resistance at 102.97.

The euro rebounded sharply against the dollar despite disappointing industry data showing the Eurozone manufacturing industry was little changed in July. Markit’s gauge of Eurozone manufacturing PMI was unchanged at 51.8, as output eased in Spain, Italy and Germany.

The EURUSD advanced 0.32 percent to 1.3433. The pair faces initial support at 1.3374 and resistance at 1.3434.

The dollar moved higher against the spiraling British pound, as UK manufacturing PMI declined faster than forecast in July. Markit’s barometer of UK manufacturing activity dipped from 57.5 to 55.4, well below estimates calling for a drop to 57.2.

The GBP/UD declined 0.26 percent to 1.6839. The pair faces initial support at 1.6819 and resistance at 1.6923.

The US dollar was little changed against its Canadian counterpart, as the USDCAD dipped 0.05 percent to 1.0899. Initial support is located at 1.0878. On the upside, initial resistance is likely found at 1.0932.

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