Dollar Rallies on Resilient US Job Market


The dollar rose against the euro on Thursday as data indicating resilience in the U.S. labor market allayed concerns about the pace of the economic recovery, with many analysts expecting the greenback to continue to gain.

With the state of the labor market a key factor for U.S. Federal Reserve policy, the dollar gained after data showed the number of Americans filing new claims for unemployment benefits fell last week.

The data offered reassurance that the bottom is not falling out of the labor market despite signs of slower growth. It also appeared to offset recent signals that economic activity softened in March and early April, a phenomenon that economists have dubbed the spring swoon because it has happened the past two years.

(Read More: Jobless Claims Drop More Than Expected, Down by 16,000 to 339,000)

Orders for durable goods marked their biggest drop in seven months in March, and despite the fall in the latest weekly jobless claims, the U.S. labor market is still sluggish and retail sales have been weak, which could keep the Federal Reserve's ultra-loose policy firmly in place.


The Federal Reserve will likely discuss the string of weak data at its policy meeting next week.

Expectations that the European Central Bank may opt to cut interest rates has kept the euro under pressure. Senior sources involved in the deliberations have told Reuters that momentum is building for monetary action to help the recession-hit euro zone.

The euro last traded at $1.3004, down 0.1 percent on the day, not far from a low of $1.2954 struck a day earlier after a German survey of business morale came in weaker than expected.

Signs that two months of political gridlock in Italy may be coming to an end were seen as positive for the euro, but not enough to offset the impact of an ECB interest rate cut.

"Part of the euro decline is technical and cross rate related, with the inability for it to hold above $1.31 and also a little spillover from euro/sterling price action," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "There is not much of an appetite to buy the euro above $1.31, and recent German data has raised expectations of an ECB rate cut at its next meeting, so there is limited upside for the euro," he said.

Investors also remain wary of the U.S. economic recovery, with gross domestic product data on Friday likely to garner a lot of attention.

"Investors have recently grown skittish about the U.S. economy losing steam following a run of soft data on the consumer and manufacturing," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. "All eyes now look ahead to Friday's first-quarter growth figures."

(Read more: Durable Goods Report Delivers More Bad News for Economy)

Gross domestic product data on Friday is expected to show the U.S. economy grew at a 3.0 percent annual pace in the first quarter, accelerating from a 0.4 percent rate in the previous period, though economists predict that has slowed to around 1.5 percent in the current quarter.

Sterling Rallies

A better-than-expected performance by the British economy saw the pound jump more than 1 percent to a two-month high against the dollar. Sterling also hit a three-week peak versus the euro.

(Read More: UK Economy Grows, but Struggle Lies Ahead, Say Analysts)

Britain avoided recession in the first quarter, wrong-footing some bearish investors, including longer-term ones, who had expected a weak number that would push sterling lower.

The data watered down expectations that the Bank of England will add to its asset-buying program to underpin the economy. Sterling rose 1.1 percent to $1.5431. The euro fell 1.1 percent to 0.8428 pence.

While worries about the British economy have eased somewhat, persistent concerns over a sustained U.S. recovery have thwarted the dollar's rise past 100 yen—last seen in April 2009— with options barriers also standing in the way.

The dollar last slipped to trade at 99.34 yen, down 0.1 percent, according to Reuters data.

Data on Thursday from Japan's Ministry of Finance on weekly capital flows showed that Japanese investors remained net sellers of foreign bonds, unloading a net 862.6 billion yen in the week to April 20.

(Read more: Why Are Japanese Still Dumping Foreign Bonds?)

Investors have been closely watching flow data in recent weeks for any indication that the Bank of Japan's massive stimulus has pushed Japanese investors to seek higher returns overseas.

Major Japanese life insurers have expressed caution about shifting funds into foreign bonds. But over a period of time, investment from large Japanese investors is likely to pick up and some of that could spill over into Europe and that could usher more yen weakness.