The U.S. dollar was on track for its biggest daily loss against a basket of major currencies in over three weeks on Friday after the U.S. government’s July employment report showed no signs of wage inflation, supporting a continued dovish stance from the Federal Reserve.
The Labor Department said U.S. nonfarm payrolls increased 209,000 last month, below economists’ expectations for an increase of 233,000, while the unemployment rate unexpectedly rose to 6.2 percent. Data for May and June were revised to show a total of 15,000 more jobs created than previously reported.
Analysts said the increase in the labor force participation rate, to 62.9 percent from 62.8 percent, and roughly flat average hourly earnings growth were critical because they indicated a lack of wage inflation, which the Fed is closely monitoring as a potential signal of reduced slack in the economy. Increasing wage inflation could prompt the central bank to raise rates.
“Low wage growth may buy the Fed a bit more time,” said Jens Nordvig, head of G10 FX strategy at Nomura Securities International. “It is the one good excuse they have left for not normalizing” monetary policy, he said.
He added, however, that the dollar’s “underlying strengthening trend” was “hardly in question.”
The U.S. dollar index .DXY was last down 0.16 percent at 81.327, retreating further from Thursday’s 10-1/2-month high of 81.573.
The index, however, posted its third straight weekly gain, largely on the view that recovering U.S. economic growth would pave the way for a more hawkish Fed.
The dollar had little reaction to The Institute for Supply Management reporting its index of national factory activity rose to 57.1 in July, holding its losses. The ISM reading was the highest since April 2011.
Consumer sentiment for July, meanwhile, was slightly below expectations. Thomson Reuters/University of Michigan’s final July reading on the overall index on consumer sentiment came in at 81.8, a touch below the 82.0 estimate.
“None of these numbers matter because Janet Yellen appears to not look at anything other than wage inflation, and she is looking at the wage inflation numbers that say everything is fine,” said Axel Merk, president and chief investment officer of Palo Alto, California-based Merk Investments.
The euro was last up 0.28 percent against the dollar at $1.3426 after hitting a session high of $1.3444.
Against the yen, the dollar was last down 0.21 percent at 102.57 yen after hitting a low of 102.35 yen, and was down 0.31 percent against the Swiss franc at 0.9057 franc after hitting a session low of 0.9042 franc.
The yield on benchmark 10-year U.S. Treasury notes dipped to 2.51 percent, from 2.56 percent late Thursday.