The dollar fell sharply against the yen and euro on Thursday, hitting levels not seen in months, as investors fretted that upcoming US jobs data would disappoint and prompt the Federal Reserve to keep its hefty monetary stimulus intact. On Friday, the US Labour Department's non-farm payrolls report will provide insight into the jobs market and offer a clue into how long the Fed plans to keep buying bonds to stimulate the economy.
Investors aggressively sold dollar long positions, bets made on expectations a currency will rise. These long positions were made on the belief that upbeat data would prompt the US Federal Reserve to taper its $85 billion per month bond buying program. But with recent data inconsistent at best, the dollar plunged as much as 3 percent versus the yen in early afternoon trade, falling below 96 for the first time since mid-April. The dollar index, which tracks the greenback against a basket of six currencies, fell as low as 81.077, its lowest since late February.
The impetus for the broad dollar sell-off was driven by its earlier weakness against the euro, according to Sebastien Galy, foreign exchange strategist at Societe Generale in New York. The euro gained for a second straight session after European Central Bank President Mario Draghi ruled out cutting overnight deposit rates below zero in the near term.
In a press briefing held after the ECB held interest rates steady at 0.50 percent, Draghi said that while the central bank was technically ready for implementing negative deposit rates - the rate it pays commercial banks to hold their money - there was no reason to act right now. "The market is very long the dollar and the failure of the ECB to deliver a rate cut or cut deposit rates below zero pushed the euro higher and pressured the dollar so much so that investors started to sell dollar longs versus all currencies, particularly the yen," Galy said.
The dollar last traded at 96.98 yen, down 2.1 percent after having struck a low of 95.96 yen in early afternoon North American trade, the lowest since mid April. The US currency lost 1 percent against the yen on Wednesday. Dollar-yen has been tracking the Nikkei stock average over its steep decline in the past two weeks as foreign investors pare back the hedges they had put in place for protection from the yen's slide between November and May.
The dollar's broad-based decline on Wednesday intensified after a closely watched report showed hiring by US firms was sluggish in May. The euro hit a high of $1.3304, its highest since late February, and was last trading at $1.3242, up 1.1 percent on the day. The euro zone's common currency also benefited from buy orders above $1.3150, traders said. Against the Japanese yen, the euro fell 0.9 percent to 128.48 yen, according to data.
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