The greenback fell sharply against major currencies on Friday after a government report showed the U.S. unemployment rate increased the most in more than two decades, adding speculation the Federal Reserve may refrain from raising borrowing costs this year.
U.S. jobless rate increased unexpected to 5.5% from 5%, the biggest jump since February 1986. U.S. payrolls have shrunk every month this year, dropping 49,000 in May. The greenback tumbled versus Japanese yen and Swiss franc from 106.35 to 104.91 and from 1.0410 to 1.0184 respectively on active unwinding in carry trades due to the selloff in U.S. stocks and the rally in crude oil prices.
Dow Jones industrial average fell 394.64 points or 3.13% to end at 12209.81. The Standard and Poor’s 500 index dropped 43.37 points or 3.09% to finish at 1360.68. The Nasdaq Composite Index tumbled 75.38 points or 2.96% to close at 2474.56. Crude oil prices rallied over $10 per barrel to a fresh record high of 139.12 and then closed at 138.14.
The single currency rallied from 1.5573 to 1.5779 against the dollar. The Radiocor news agency reported that ECB executive board member Lorenzo Bini Smaghi said in Venice that there's ‘broad consensus’ that an interest rate increase may be necessary next month. ECB council member Axel Weber said that financial markets understand the central bank's anti-inflation message.
The British pound rose from 1.9536 to 1.9735 in tandem with euro on dollar’s broad-based weakness. Australian dollar strengthened against U.S. currency from 0.9566 to 0.9644, 11 pips below the record high of 0.9655 made last month.
Next week will see the release of Japan’s economic watch DI, leading indicators, German trade balance and current account, U.S. PPI and pending home sales on Monday; U.K. BRC retail sales, Japan’s machine orders, German WPI, U.K. DCLG house prices, industrial and manufacturing production and U.S. trade balance on Tuesday; Japan’s GDP, domestic CGPI, trade balance and current account, U.K. claimant count, ILO unemployment rate and trade balance on Wednesday; eurozone industrial orders, U.S. jobless claims, retail sales and business inventories on Thursday; U.K. RICS house prices, Japan’s industrial production, German CPI and HICP, eurozone employment, U.S. CPI, real earnings and University of Michigan survey on Friday.