Dollar Climbs vs. Yen on U.S. Jobs Data
The dollar rose against the yen Friday, as a slightly-above-forecast jobs report eased was seen reducing the chance of an aggressive interest rate cut.
Analysts said it was now nearly certain the Federal Reserve would lower its benchmark overnight lending rate by only 25 basis points to 4.25 percent next Tuesday, rather than half a percentage point, as the U.S. economy is not falling off the cliff.
"When you look at details of the employment report, it's showing signs that the U.S. is not in any immediate danger of going into recession. So the justification for a 50 basis point rate cut is not there," said Paresh Upadhyaya, currency analyst at Putnam Investments in Boston.
While a quarter-point easing would still reduce the allure of dollar-denominated assets, analysts said a deeper cut would cause investors to worry more about the economy's prospects than they already were.
Rate futures are factoring in a roughly 41 percent chance of a 50 basis points interest rate cut from 47 percent on Thursday and 65 percent a week ago. A quarter point reduction has been fully priced in.
In early afternoon, the dollar traded 0.4 percent higher against the yen at 111.70 yen.
But the dollar eased against the euro, which continued to draw support from European Central Bank President Jean-Claude Trichet's hawkish inflation comments on Thursday.
The euro last traded 0.1 percent higher at $1.4651 after a brief drop following the payrolls data.
The euro got a boost the previous day, recovering from three-week lows versus the dollar, after Trichet warned of strong upward pressure on inflation and said some central bankers had wanted a rate rise from the current 4.0 percent.
A surprisingly strong Canadian jobs report boosted the Canadian dollar against the U.S. currency, recouping some losses triggered by an unexpected interest rate cut earlier this week. The dollar last traded down 0.4 percent at C$1.0044.
U.S. employers added 94,000 jobs in November and the jobless rate held steady at 4.7 percent, the Labor Department said. Economists polled by Reuters had expected the economy to add 90,000 jobs last month.
In another report, U.S. consumer sentiment fell for a third straight month in early December.
"Michigan data continues to point to erosion of consumer confidence," said Alan Ruskin, chief market strategist at RBS Greenwich Capital in Greenwich, Connecticut. "The broader USD tone looks fairly neutral. The numbers are very consistent with the Fed cutting the funds rate 25 basis points on Dec. 11."