Dollar and yen post gains

The dollar and yen rose on Friday after a report showed the US unemployment rate spiked and the economy lost more jobs than expected, stoking concerns about the US economy and restoring safe-haven demand for both currencies. The news dashed hopes the recession was ending after recent gross domestic product and jobless claims readings had seemed to indicate a recovery.
With the labour market still weak, US consumer sentiment and spending will likely remain under pressure, analysts said. On Friday, the government reported US employers cut a deeper-than-expected 190,000 jobs in October, driving the unemployment rate to a 26-1/2-year high at 10.2 percent. The jobless figures "grabbed attention upon the announcement and created an avalanche of currency selling in favour of the dollar by investors," said Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Connecticut.
In late afternoon trading, the euro slipped 0.2 percent at $1.4841, near a session low at $1.4815, according to Reuters data. The euro briefly erased losses versus the dollar to hit a session high of $1.4913. Against the yen the dollar fell as low as 89.62 yen, according to Reuters data, and last traded 0.9 percent lower at 89.90 yen. The euro declined 1.1 percent to 133.56 yen, after hitting a session low of 133.22 yen.
The dollar and yen tend to move in tandem with swings in risk appetite, rising when economic numbers are bad or when stocks are down. Analysts said the dollar also came under pressure against the yen as two-year US Treasury yields eased after the jobs data. The two-year notes are most sensitive to potential changes in the Federal Reserve's monetary policy.
Low US interest rates have fuelled speculation the greenback has replaced the yen as a primary funding currency in carry trades. In such trades, investors borrow in low-yielding currencies and reinvest the proceeds in currencies and assets with greater returns.
"Dollar/yen has essentially become an interest rate play," said Paresh Upadhyaya, portfolio manager at Putnam Investments in Boston. "With interest-rate differentials narrowing further against the dollar, you're seeing dollar/yen under pressure."
The dollar initially rose after the jobs data on safe-haven demand, but pared gains on reduced expectations the Fed would tighten its ultra-loose monetary policy soon. The implied chances of the Fed's first rate hike by mid-2010 slipped to about 66 percent from 84 percent late on Thursday. The ICE Futures US dollar index, a measure of the greenback's value against a basket of six other major currencies, was little changed at 75.774.
Daniel Katzive, currency strategist at Credit Suisse in New York, said the jobs number was not weak enough to call into question a global recovery story. At the same time, it was poor enough to keep the markets thinking the Fed will hold rates for some time. Meanwhile, a meeting of finance ministers and central bankers the Group of 20 major industrialised and emerging nations in Scotland on Friday and Saturday is also in focus, although discussions on currencies are not on the formal agenda.