For those hoping the latest US jobs report might finally give a listless currency market some direction, there wasn't much to cheer in the 144,000 increase in August non-farm payrolls.
This rate of job growth was largely in line with economists' expectations, and fails to add anything to people's view on the US economy and expectations that interest rates will continue to rise at a "modest" pace in the months ahead.
It dampens hopes the dollar might be able to break out of well-worn ranges against the major currencies. Analysts had predicted that a sub-100,000 jobs growth could have sparked a major dollar selloff, while anything above 200,000 would have prompted an even more impressive surge.
As it is, the dollar strengthened across the board, but not to any great extent and not enough to stir the market.
"It makes the environment for currencies kind of difficult in the next couple of weeks," said Jason Daw, senior G10 foreign exchange strategist at Merrill Lynch in New York. "It's a low volatility environment."
The 144,000 increase in August jobs nearly matched economists' forecasts for a figure of 150,000 and the unemployment rate fell to 5.4 percent from 5.5 percent, the lowest in nearly three years. The number of new jobs created in June and July was also revised up by a combined 59,000.
The euro fell more than a cent, or 0.9 percent, to $1.2069 from just before the data were released. This is still broadly in the middle of the $1.1750-$1.2460 range that's remained intact since the end of April.
Hardly anybody expects that range to break any time soon.
The dollar also strengthened against other currencies after the data Friday - it hit a fresh three-month high against sterling - but many see this as merely a knee-jerk move rather than representing a trend.
"The average (monthly) gain for the last three months is 104,000 against 295,000 in the previous three months," noted Robert Sinche, head of strategy at Bank of America in New York. "This might be enough to allow the Fed to go ahead and tighten in September, but these numbers aren't robust at all and I think the market's reaction in taking the euro below $1.2100 was an over-reaction."
Interest rate futures markets are pricing in a near-100 percent chance the Federal Reserve will raise rates at its September 21 meeting. The likely 25-basis-point increase would be the third this year and bring its federal funds target rate up to 1.75 percent.
The Fed has insisted that soft economic data over the summer represented a soft patch, and that the economy was on a self-sustaining, upward path.
Given the recent string of poor jobs and trade numbers and other less-than-stellar indicators, the central bank's desire to bring rates back up to what it considers a more neutral level was called into question in some quarters.
But a fed funds rate of 2 percent at the end of the year now seems likely. Higher interest rates generally support a currency because they burnish its allure to foreign investors, so the dollar's downside could be limited.
Equally, the Fed has clearly telegraphed its intentions in recent months, and so the prospects of higher rates might already be factored into the dollar's price.
To this end, Fed Chairman Alan Greenspan's Congressional testimony next Wednesday could move the dollar more than today's payrolls data.
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