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The dollar had the biggest weekly drop against the yen in almost three months as US payrolls rose less than forecast in December, fuelling concern the Federal Reserve will slow reduction in bond-buying. |
Canada’s dollar weakened to a four-year low as the nation’s jobless rate unexpectedly rose, led by the largest drop in full- time work since 2011, adding to bets the central bank may consider cutting interest rates. The pound snapped a three-week rally against the euro on signs manufacturing slowed. Mexico’s peso led gains among major currencies as the slowest increase in US payrolls in three years fueled demand for the Latin American country’s debt. Treasury yields plunged.
“The employment report turned out to be the largest headwind of the year for the very large short position in yen,” Neil Azous, founder of Rareview Macro, a Stamford, Connecticut-based advisory and research firm, said in an interview referring to bets the yen would decrease in value. “The theme to start the year has been a stronger yen and lower US yields.”
The dollar fell 0.7% to 104.18 yen this week in New York, the biggest drop since the five days ended October 18. It touched 105.44 on January 2, the strongest since October 2008. The US currency weakened 0.6% to $1.3670 per euro. The yen added 0.1% to 142.39 per euro.
The Bloomberg Dollar Spot Index, which tracks the US currency against 10 of its major counterparts, decreased 0.2% to 1,023.77, after touching 1,030.42 on January 9, the highest since September 9.
The benchmark 10-year note yield fell 14 basis points, or 0.14 percentage point, to 2.86% this week. The two-year yield dropped three basis points to 0.37%. The yen gained as futures traders trimmed bets for a second week that the currency would drop, figures from the Washington- based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain - so-called net shorts - was 128,868 on January 7, compared with net shorts of 135,228 a week earlier. Canada’s dollar slumped the most among its 16 major peers as the nation’s unemployment rate reached 7.2% in December, the highest since July and taking it above the US jobless measure for the first time since 2008. Bank of Canada Governor Stephen Poloz said this week he has “some room to maneuver” on interest rates.
“The Bank of Canada is definitely on hold on the back of that one,” said Sebastien Galy, senior foreign-exchange strategist at Societe Generale SA, by phone from New York. “It has all the right elements for the Bank of Canada to maintain a very dovish message and kind of implicitly encourage the Canadian dollar to weaken.”
The loonie, as the Canadian currency is known for the image of the aquatic bird on the C$1 coin, depreciated 2.4% to C$1.0892 per US dollar from the end of last week. It reached C$1.0946, the weakest since October 2009.
The pound fell against the euro this week after industrial and manufacturing production unexpectedly stagnated and construction output dropped.
“The market is long of sterling and has pushed it lower on the back this data,” said Gavin Friend, a foreign-exchange strategist at National Australia Bank in London.
A long position is a bet an asset price will rise. “There’s enough momentum in the UK economy and a danger of over-interpreting what this number means.”
The UK currency depreciated 0.2% to 82.94 pence per euro, snapping a four-week advance.
The peso appreciated 1.1% to 12.9676 per greenback after US Labour Department figures showed payrolls in Mexico’s biggest trade partner increased by 74,000 in December, versus the median forecast in a Bloomberg News survey for a 197,000 advance. The unemployment rate fell to 6.7% as more people left the labor force.
“If the tapering is not as strong as previously thought, then the peso will not suffer from risk aversion,” Pedro Tuesta, a Latin America economist at 4Cast Ltd, said by phone from Washington.