Dollar Falls to Four-Month Low as Wage Drop Outweighs Jobs Gain

The dollar rally is on hold.

A gauge of the greenback dropped to a four-month low after U.S. wages unexpectedly declined last month, outweighing higher-than-forecast jobs gains. The mixed employment data will feed into the Federal Reserve’s assessment of the economy when it meets later this month to decide on monetary policy.

"The dollar showed some strength, but that’s reversed course," said Jennifer Vail, head of fixed-income research in Portland, Oregon at U.S. Bank Wealth Management, which oversees $125 billion. The report "has generated some concerns about whether or not wage growth is on a sustainable path."

The dollar index dropped 1.8 percent in February on concern that a global economic slowdown will drag down the world’s biggest economy. Last month’s stumble, which was the currency’s worst since April 2015, followed a two-year rally on speculation that the Fed would boost borrowing costs while its biggest peers carried out unprecedented stimulus.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, dropped for a fifth day, falling 0.3 percent to 1,214.05 as of 5 p.m. New York time. The index rose as much as 0.2 percent earlier.

The dollar slid 0.4 percent to $1.1005 per euro, bringing its weekly decline to 0.7 percent.

Hedge funds and other large speculators increased bets on dollar gains against eight major currencies for the first time in six weeks. The so-called net longs increased to 124,048 contracts in the week to March 1, according to the Commodity Futures Trading Commission in Washington.

Economic Reading

Average hourly earnings dropped by 0.1 percent from the prior month, the first decline in more than a year, a Labor Department report showed Friday. Worker pay increased 2.2 percent over the 12 months ended in February, less than the 2.5 percent forecast in a Bloomberg survey. Wage growth has been hovering just above 2 percent year-over-year on average since the current expansion began in mid-2009.

"The report didn’t add anything new to the market’s body of knowledge, except that wage inflation is not as firm as we would have expected," said Bipan Rai, director of foreign-Exchange strategy in Toronto at Canadian Imperial Bank of Commerce’s CIBC World Markets unit.

Employers added more workers in February than projected. The 242,000 gain followed a 172,000 rise in January that was larger than previously estimated. The jobless rate held at 4.9 percent, an eight-year low.

The report "leaves the greenback in the lurch," said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Hellerup, Denmark. "Headline payrolls were robust, but it was super-disappointing to see average hourly earnings dip."

In December, policy makers lifted rates by a quarter-point from near zero and forecast four more rate increases this year. Officials have projected that risks to growth and inflation would prove transitory. The central bank’s favored inflation measure hasn’t reached officials’ 2 percent target since 2012.

To contact the reporters on this story: Lananh Nguyen in New York at lnguyen35@bloomberg.net, Andrea Wong in New York at awong268@bloomberg.net. To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Paul Cox, Michael Aneiro

By: Lananh Nguyen and Andrea Wong

©2016 Bloomberg News