NEW YORK: The dollar fell sharply against the yen on Wednesday as weaker-than-expected US private jobs growth last month and a modest rise in factory activity lowered chances the Federal Reserve may wind down its stimulus program any time soon.
The US currency had risen in recent sessions on the view that the run of upbeat economic data over the last month could prompt the Fed to taper its $85 billion per month quantitative easing program, a mechanism viewed as negative for the greenback as it is tantamount to printing money.
Hiring by US firms was sluggish in May, according a report on private-sector jobs on Wednesday, while a sharp rise in mortgage interest rates last week weighed on what has been a buoyant housing market, adding to signs the economy lost some momentum in the second quarter.
The moderate pace of private-sector hiring in the ADP National Employment Report and the decline in the employment index of a US services sector report may prevent the Fed from paring back the scale of its QE stimulus policy.
The ADP figures come two days ahead of the government's more comprehensive labor market report, which includes both public and private sector employment.
"Today's dollar weakness can be chalked up to jobs trepidation and investors pared longs because today's data suggest a greater risk that Friday's report will disappoint," said Joe Manimbo, senior market analyst at Western Union Business Solutions on Washington D.C.
"The Fed has said it is on data-watch and so Friday's data carries added significance because it will speak volumes as to whether the Fed will taper its monthly bond purchases," he said.
The US Labor Department is expected to show job growth increased only slightly, with nonfarm payrolls seen rising by 170,000 compared to the 165,000 seen in April.
The Fed's Beige Book on Wednesday said that hiring had increased at a "measured pace", though the regional details were mixed.
The US dollar fell as low as 98.95 yen in early afternoon North American trading as investors sought the safety of Japan's currency amid a general retreat from risky assets. The dollar last traded at 99.18 yen, down 0.8 percent on the day.
Some analysts are convinced the Fed could start reducing its asset purchases at the end of the year and the softer-than-forecast ADP number has not altered their view.
Dean Popplewell, chief currency strategist at forex broker OANDA in Toronto, noted that over the last 10 months, the ADP number was below the US payrolls figure eight times, missing estimates by about 37,000 jobs.
"There's a wide variance between the ADP number and the actual payrolls figure, so I don't think we would see changes in jobs forecasts for most banks," Popplewell said. "And I don't believe the ADP would change the Fed's tapering plan if that is in the works."
Earlier in the day, the yen gained traction after a pledge by Japanese Prime Minister Shinzo Abe to raise incomes disappointed markets due to a lack of detail. His comments weighed on Japanese shares. Stocks in Europe also fell.
The euro, meanwhile, last traded up 0.1 percent at $1.3094 , not far from the session high above $1.31 reached after the US private-sector jobs report.
Investors overall were wary before a European Central Bank decision on Thursday. The ECB is expected to leave interest rates unchanged, but weak data on euro zone services sector activity suggested an economic recovery was some way off and kept alive the chances of further easing.
The Australian dollar fell to its lowest in more than 1-1/2 years against the greenback as traders broke through an options barrier on the downside a day after the Reserve Bank of Australia left the door open for more easing.
Traders said market participants broke through the barrier at US$0.9525. The low on the Aussie was posted at US$0.9509 , its weakest level since October 2011. The Aussie dollar last traded at US$0.9538, down 1.1 percent.
On Tuesday, the RBA held rates steady at 2.75 percent but said it could again ease.
<Center><b><i>Copyright Reuters, 2013</b></i><br></center>
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