The US dollar rose against the yen on Friday after US jobs data was as bad as many had feared and did little to dampen investors' improved appetite for risk. The euro also edged higher, extending gains it made in the previous session after the European Central Bank cut interest rates less than expected and declined to be specific about a more aggressive stance to boost growth.
The dollar jumped to a five-month peak above 100 yen after the Labour Department said US employers cut 663,000 jobs in March, against economists forecast of 650,000. The unemployment rate rose to 8.5 percent, a 25-year high. "It's a pretty awful number but it was almost to be expected," said Matt Esteve, a foreign exchange trader at Tempus Consulting in Washington. "There seems to be no bottom in the US job markets yet, but other recent economic indicators have been better than expected."
"The dollar is trading above 100 versus the yen, it's really where it should be," he added. "The Japanese economy is in dire straits." In late New York trading, the dollar was up 0.7 percent at 100.26 yen after rising as high as 100.37 yen, the highest level since November, according to Reuters data.
The euro was up 0.2 percent at $1.3484 after dipping to $1.3366 after the jobs data. A slowing rate of contraction in Britain's services sector lifted sterling 0.7 percent to $1.4833. For the week, the euro gained about 1.9 percent against the dollar and the dollar advanced 2.4 percent versus the yen.
Analysts said while the nonfarm report confirmed that the US labour market remains in a severe slump, investors were relieved that job losses were not as big as some economists had feared. That has further bolstered risk appetite in the market, which improved remarkably this week on the back of efforts by world leaders at the G20 summit in London to fight the global economic crisis and a change in US accounting rules that should help troubled banks.
Dustin Reid, senior currency analyst at RBS Global Banking & Markets in Chicago, expects the recent risk sentiment rally to continue for the short run. "The near-term sentiment looks to be risk appetite positive and that should be positive for euros and it's probably going to be negative for the yen on the margin," he said.
"But I don't think it's going to last for a long time. I think it'll fade at some point when we have further issues in the US economic cycle." The dollar and yen have come under pressure lately after a slew of economic data releases beat expectations, stoking expectations that the global economy is showing signs of stabilisation.
The US and Japanese currencies tend to rise in times of trouble as investors repatriate funds from higher-yielding currencies and riskier assets. But Samarjit Shankar, director of global foreign exchange strategy at the Bank of New York Mellon in Boston, said caution is warranted.
"Job losses in the US in the current recessionary conditions total 5.1 million thus far, the worst slump in the post-war era - further losses are likely to crimp consumer sentiment and spending going forward," he wrote in a note. "Meanwhile, other economies also continue to struggle and are not out of the woods yet. Against this backdrop, risk appetite is expected to be fickle."