World's biggest currency trader says weak jobs mean weak dollar

Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, fell 0.4% to 1,208.91 this week in New York

The dollar is looking down.

Citigroup Inc, the top foreign-exchange trader by volume and one of the banks to correctly forecast a weaker-than- projected jobs report, said Friday's data will cause the US currency to depreciate. With the Federal Reserve less likely to raise interest rates amid global economic growth concern, the bank sees refuge currencies, including the yen and the euro, benefiting.

The Bloomberg Dollar Spot Index declined to a two-week low after a Labor Department report showed the economy added 142,000 jobs in September, trailing forecasts of 201,000. The index was trading higher for the day just before the 8:30 am Friday release of the report.

"The last trades going into the number were going the wrong way, so that basically exacerbates the impact," said Steven Englander, global head of Group-of-10 foreign exchange-strategy in New York at Citigroup. "Emerging markets are going nowhere and Europe and Japan are appreciating."

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, fell 0.4 per cent to 1,208.91 this week in New York. The US currency dropped 0.2 per cent to $1.1216 per euro and lost 0.6 per cent to 119.91 yen.

The Parker Global Currency Manager Index, which tracks the returns of foreign-exchange funds, fell 0.2 per cent to 128.15, its lowest point since June 29. Prior to Friday's data, the Bloomberg Dollar Spot Index typically rose 0.3 per cent one hour after the release of the past 12 employment reports, according to data compiled by Bloomberg.

Traders pared bets on a 2015 Fed rate boost and subsequent increases after the labour data was published. The probability the futures market assigns for a boost at or before the central bank's March meeting is 56 per cent, down from 66 per cent on Thursday, according to data compiled by Bloomberg. The calculation is based on the assumption that the effective fed funds rate will average 0.375 per cent after liftoff.

"There's a common expression about 'don't fight the Fed' - they have more sources of information than the average person on the street," Pete Karabatos, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California, said by phone. "I'm struggling to find anything positive out of this - the dollar selling is probably going to continue."

Dollar weakness

The dollar has trailed the euro and the yen during the past three months, advancing just 2.6 per cent within a basket of 10 major peers, according to data from Bloomberg Correlation-Weighted Indexes.

The weak employment data means the European Central Bank and the Bank of Japan won't be able to wait for the Fed to boost interest rates before they have to take additional measures to stabilise their currencies, said Englander of Citigroup, which was ranked by Euromoney as the world's biggest foreign-exchange bank in 2015. This year, ECB and BOJ officials have publicly considered adding to their already unprecedented monetary stimulus this year.

Friday's data are "good for Group-of-Five safe-haven currencies - yen, euro, Swiss franc, British pound - they have their own worries, but the dollar is on back foot until they show a policy hand," Englander wrote in a note on Friday.