April 6 (Bloomberg) -- The dollar rose from a two-year low against the euro and strengthened versus the yen as a government report showed the U.S. added more jobs than economists forecast.
The U.S. currency advanced against 12 of the 16 most active currency tracked by Bloomberg as the unemployment data led traders to reduce speculation the Federal Reserve will cut borrowing costs in the third quarter. Currency moves were magnified by a lack of volume, traders said.
``It was a very strong number, and after yesterday's move it surprised a lot of people,'' said Camilla Sutton, a currency strategist in Toronto at Scotia Capital Inc. ``It switches things around, and we can see a stronger dollar for a while.''
The dollar rose 0.46 percent to $1.3367 per euro at 10:13 a.m. in New York. It was the biggest gain since March 5. The dollar yesterday fell to $1.3442, the lowest since March 2005. The dollar rose 0.54 percent to 119.36 yen.
U.S. stock markets were closed today for Good Friday, and the Securities Industry and Financial Markets Association recommended bond trading close at 11 a.m. New York time.
The dollar also strengthened against the yen on speculation signs of U.S. economic strength will encourage investors to buy higher-yielding assets financed by borrowing in Japan, a practice known as the carry trade.
``The dollar is going strong, and we'll see people taking on more risk,'' said Brian Taylor, chief currency trader in Buffalo, New York, at Manufacturers & Traders Trust. ``They'll be putting on more carry trades as we speak. It's going to be hard to stop the yen's decline.
Euro-Yen Record
The euro rose 0.09 percent to 159.57 yen, after touching 159.69, an all-time high. The 13-country euro began trading in January 1999.
The implied volatility of a one-month dollar-yen option fell to 8 percent, the lowest since Feb. 26, the day before a global stock market rout led to an unwinding of some carry trades. Low volatility reduces the risk of carry trades by making profits more predictable.
The yield of the 10-year Treasury note rose 7 basis points, or 0.07 percentage point, to 4.76 percent. The difference in yield, or spread, between the Treasury note and the comparable- maturity Japanese security grew 8 basis points to 3.08 percent, the widest since Feb. 12, indicating the U.S. security had become more attractive to investors. The spread between U.S. and German 10-year government debt grew 6 basis points to 0.65 percent, the widest since March 14.
U.S. Job Growth
U.S. employers added 180,000 non-farm jobs in March, following a revised gain of 113,000 the previous month, the Labor Department said today in Washington. The median forecast of 75 economists surveyed by Bloomberg News was for an increase of 130,000 jobs. The jobless rate fell to 4.4 percent from 4.5 percent, compared with an expected rise to 4.6 percent.
Interest rate futures suggest a 35 percent likelihood the Fed will cut its target rate for overnight lending between banks to 5 percent at its Aug. 6-7 meeting, down from 52 percent odds before the jobs report. As recently as March 13, the market was certain of an August rate cut. The Fed has kept its target rate for overnight lending between banks at 5.25 percent since August.
An inflation measure closely tracked by the Federal Reserve gained in February, the Commerce Department reported March 30. The price gauge, tied to spending patterns and excluding food and energy costs, rose 2.4 percent from February 2006 after rising 2.2 percent in January from a year earlier.
St. Louis Federal Reserve Bank President William Poole, speaking in New York on April 2, said he would face a ``high hurdle'' for favoring interest-rate cuts if inflation stays near the current pace. He reiterated that his goal for annual inflation is 1.5 percent, plus or minus 0.5 percentage point.
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U.S. Stock-Index Futures Gain as Jobs Growth Exceeds Forecast
U.S. stock-index futures rose after employers added 180,000 jobs last month and the jobless rate unexpectedly fell, bolstering speculation that consumer spending will keep the economy growing.
The increase in March payrolls followed a 113,000 gain in February. Economists predicted 130,000 jobs would be added last month, according to the median estimate in a Bloomberg survey. The jobless rate fell to 4.4 percent, matching a five-year low.
``It's a pretty firm number,'' said Daniel Manion, who oversees $1.2 billion as portfolio manager at Sentinel Asset Management in Montpelier, Vermont. The report comes at ``a very important time for the equity markets as companies get ready to report first-quarter earnings.''
Standard & Poor's 500 Index futures expiring in June gained 5.3 to 1458 as of 9:15 a.m. in New York, when trading ended on the Chicago Mercantile Exchange's electronic Globex platform. Nasdaq-100 Index futures climbed 10.5 to 1838.75.
Stock exchanges in the U.S. are closed for Good Friday. On Globex, 2,268 contracts on the S&P 500 changed hands, compared with an average of 27,200 over the previous four sessions.
Bonds tumbled and the dollar jumped following the employment report, which also showed that average hourly earnings rose 0.3 percent, matching estimates. Revisions for the previous two months showed employers added 32,000 more jobs than the Labor Department had earlier estimated.
Yields Rise
The yield on the benchmark 10-year note rose 5 basis points, or 0.05 percentage point, to 4.73 percent at 8:47 a.m. in New York, according to bond broker Cantor Fitzgerald LP. The dollar rose 0.37 percent to $1.3379 per euro.
Alcoa Inc., the first member of the Dow average to report quarterly results, kicks off the so-called earnings season on April 10. Analysts expect S&P 500 members to post average growth of 3.5 percent in the January through March quarter and 6.8 percent for the full year, according to a Bloomberg survey.
The report takes some of the pressure off Federal Reserve Chairman Ben S. Bernanke to cut interest rates as new jobs and higher wages put money in the wallets of more Americans.
``We have to look at more data, but it definitely allays some of the short-term concern we've seen in the bond market that the U.S. economy is headed for a harder landing than anticipated,'' said George Hoguet, global investment strategist for State Street Global Advisors in Boston.
U.S. stocks yesterday completed a weeklong rally to post their best start to a second quarter since 2004, helped by Kirk Kerkorian's $4.5 billion offer for Chrysler Corp. and upgraded profit estimates for technology companies.
The Dow Jones Industrial Average rose 30.15, or 0.2 percent, to 12,560.20, ending 1.8 percent shy of its record high reached a week before its worst rout in four years on Feb. 27. The S&P 500 gained 4.39, or 0.3 percent, to 1443.76 and the Nasdaq Composite Index climbed 12.65, or 0.5 percent, to 2471.34.
For the week, the Dow average added 1.7 percent, the S&P 500 rose 1.6 percent and the Nasdaq Composite Index increased 2.1 percent.
Treasury Yields Rise to Eight-Week High as Job Growth Increases
April 6 (Bloomberg) -- Treasuries fell, pushing 10-year note yields to the highest in eight weeks, as a more-than-forecast increase in hiring and a drop in the unemployment rate in March eased speculation the Federal Reserve will cut borrowing costs.
Two-year notes, more sensitive than longer-maturity debt to rate changes by the Fed, fell the most since March 9, when the previous monthly employment report also was stronger than economists forecast. In interest-rate futures markets, the odds of a rate cut by mid-year fell almost to zero.
``It makes it very difficult to make the case the Fed may cut anytime soon, and the market is taking out those cuts that it had priced in,'' said Michael Pond, an interest-rate strategist in New York at Barclays Capital Inc., one of the 21 primary dealers that trades directly with the central bank.
The yield on the benchmark 10-year note rose 7 basis points, or 0.07 percentage point, to 4.75 percent at 11:26 a.m. in New York, according to bond broker Cantor Fitzgerald LP. The price of the 4 5/8 percent security due February 2017 fell 18/32, or $5.63 per $1,000 face amount, to 99.
Yields on two-year notes rose 11 basis points to 4.74 percent, the highest since Feb. 26. The price of the 4 1/2 percent security fell 7/32 to 99 18/32.
The difference between yields on two-year and 10-years Treasuries narrowed to about 1 basis point from 5 basis points yesterday, the smallest in two weeks. The narrowing gap indicates investors expectations are increasing that ``the Fed will respond to higher inflationary pressures,'' Pond said.
Technical Support
Ten-year yields exceed their 200-day moving average for the first time since Feb. 2 by trading as high as 4.75 percent. The yield is a ``natural support level'' for the market, said Walter Burke, technical strategist at Merrill Lynch & Co. in New York. Technical analysts make predictions based on chart patterns.
The next major support for 10-year notes is at 4.79 percent, Burke said. A line connecting the June 2006 high of 5.25 percent and the January high of 4.91 percent intersects today's date at that level, he said.
The 180,000 increase in employment followed a 113,000 gain in February that was larger than previously estimated, the Labor Department reported today in Washington. The jobless rate fell to 4.4 percent, matching October's five-year low.
The dollar rose from a two-year low against the euro and gained versus the yen after the employment report. The dollar rose 0.44 percent to $1.3370 per euro, after dropping yesterday to $1.3442, the lowest since March 2005. The dollar rose 0.49 percent to 119.32 yen.
Fed Expectations
Interest-rate futures contracts for July show traders see about an 8 percent chance the Fed will lower its target overnight lending rate between banks to 5 percent from 5.25 percent by mid- year.
Fed policy makers left the federal funds rate unchanged at their March 21 meeting, and said they are focused on bringing down inflation at a time of slowing growth.
Fed Chairman Ben S. Bernanke told Congress on March 28 that ``policy is still oriented toward control of inflation.'' The central bank's preferred price gauge rose 2.4 percent in February from a year earlier, the Commerce Department reported on March 30. Bernanke has said a 1 percent to 2 percent range would be preferable.
``It does have the implication of Bernanke being correct, the Fed being on hold and the market needing to back up to higher yields over the next weeks,'' said Glen Capelo, a Treasury trader at RBS Greenwich Capital in Greenwich, Connecticut.
Holiday Trading
With U.S. stock markets closed today for the Good Friday holiday, the Securities Industry and Financial Markets Association recommended an 11 a.m. New York time close for bond trading.
About $102.7 billion in Treasuries traded through ICAP, the largest broker of trades between banks, as of 10:04 a.m. in New York. The three-month daily average is $284.6 billion.
Three of the seven biggest moves in the benchmark 10-year note during the past 10 months occurred on employment report days. Employment reports, usually released on the first Friday of the month, have come on Good Friday three times since 1990, and ``movements in yields were more exaggerated than the historical and expected measures would indicate,'' according to an April 4 report by primary dealer Credit Suisse.
Treasuries had their biggest decline this year on March 9 when the February employment report was stronger than forecast. The 10-year note's yield rose 7.5 basis points.
``The market reacted pretty fast and true'' as though trading desks were fully staffed, said Martin Mitchell, head government bond trader at the Baltimore unit of Stifel Nicolaus & Co., a St. Louis-based brokerage firm.
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