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Dollar posts largest one-day drop in 4 months after weak U.S. jobs report

NEW YORK | By Dion Rabouin | Markets | Fri Jun 3, 2016 4:50pm EDT

Against the euro, the dollar registered its largest one-day percentage fall in six months with investors betting weak economic data were likely to keep rates on hold in the coming months.

Higher U.S. interest rates increase the yields for dollar-denominated assets such as U.S. Treasuries, which make the dollar more attractive to investors.

Nonfarm payrolls increased by just 38,000 jobs last month, the smallest gain since September 2010, the Labor Department said on Friday.

Meanwhile, a survey by the Institute for Supply Management showed a significant cooling in services sector activity.

“Today’s data … means the Fed is on hold, isn’t going to tighten in June, certainly not in July and they probably won’t even consider tightening until after the presidential election,” said Jonathan Lewis, chief investment officer at Fiera Capital Inc in New York.

Fed funds futures rates showed traders see only a 6 percent chance the U.S. central bank will raise interest rates at its June 14-15 policy meeting, down from a 21 percent chance on Thursday, according to CME Group’s FedWatch tool.

FedWatch also showed investors had reduced the probability of a rate increase in July to 33 percent from nearly 60 percent on Thursday.

The probability of two or more hikes also dropped significantly with only a 25 percent chance of two increases currently priced into the market.

A Reuters survey of primary dealers, the large banks authorized to transact directly with the Fed, found that nine out of 15 respondents anticipate only one rate hike in 2016.

The dollar index .DXY fell 1.6 percent to 93.989, its lowest since May 12. That was the biggest one-day percentage drop for the index since Feb. 3. For the week, the dollar index fell by about 1.5 percent.

Against the yen JPY=, the dollar fell 2 percent on Friday to 106.74, having earlier touched its lowest since May 6. The dollar fell more than 3 percent against the yen for the week.

The euro EUR= rose by 1.7 percent against the dollar, touching a high of $1.1349, its highest level since May 13. It was the largest single-day gain for the euro since December 3. For the week, the euro rose just over 2 percent.

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