Dollar rallied against a basket of currencies except Japanese yen after the key monthly U.S. employment report showed employers shed 467,000 jobs in June, way more than consensus forecast of 363,000 cut, while the unemployment rate rose to 9.5%, the highest since 1983, renewing widespread concerns over the pace of the economic recovery’s pace. U.S. Treasury bonds rose and global stocks tumbled around 2-3% as the worse-than-expected data raised risk aversion, sparking active unwinding of yen carry trades as well as liquidation of higher-yielding assets. The dollar dropped to 95.70 against the yen in New York afternoon.
On Wednesday, the euro rose to a three-week high of 1.4202 after G8 sources said that China asked for a debate on proposals for a new global reserve currency. However, in Thursday Asian morning, China Vice Foreign Minister He Yafei said that during a news briefing he had not heard about reports that China had requested a debate about global reserve currency. He also added Beijing hoped the dollar would remain stable but reiterated that China of course hoped for reserve currency diversification in the future. In addition, another piece of euro-negative news rocked the single currency, with Moody’s downgrade of Ireland’s credit rating to AA1 from AAA and setting the outlook to negative. The unemployment rate in eurozone rose to 9.5% from 9.3% in April, bringing the number to the highest rate since May 1999. The European Central Bank left its key interest rate unchanged at a record low of 1.0% and ECB’s president Trichet warned eurozone activity would remain weak for the rest of this year. The single currency fell to as low as 1.3988 against the dollar and 134.15 versus the yen in New York afternoon before stabilising.
In other currencies, the British pound fell sharply from 1.6501 to as low as 1.6323 against the dollar and from 159.32 to 156.89 versus the yen after the release of weaker-than-expected U.S. jobs data. Meanwhile, high-yielding currencies such as the Australian dollar and the New Zealand dollar dropped to session lows of 0.7935 and 0.6281 respectively against the U.S. dollar before stabilising. Aussie fell to as low as 76.09 versus yen in New York afternoon.
Earlier in European morning, SNB board member Thomas Jordan said it was ready to continue interventions to fight the strength in the Swiss franc. Eur/chf jumped to 1.5247 after the comments before retreating in New York morning while usd/chf hit session high of 1.0880 after the release of U.S. jobs data.
Friday will be a holiday in U.S. Data to be released on Friday includes Switzerland CPI, eurozone service PMI and retail sales, U.K. house price data and service PMI.