Dollar drops after jobs report

NEW YORK (MarketWatch) -- The dollar edged lower against other currencies Friday after a government report showed the U.S. economy created fewer-than-expected jobs in April.
The Labor Department said nonfarm payrolls expanded by 88,000 in April, lower than the 100,000 expected by economists surveyed by MarketWatch. The unemployment rate ticked higher to 4.5% from 4.4%, in line with expectations. Average hourly earnings increased 4 cents, or 0.2%, to $17.25, vs. expectations of a 0.3% gain

"The employment report prompted a modest bout of dollar weakness as players remained cautious over the extent of the dollar's recent consolidation," said Michael Woolfolk, senior currency strategist at The Bank of New York.
"The real surprise in this morning's price action was not the relatively modest reaction to non-farm payrolls, but rather the dollar's negative tone," he said. "While the dollar may still see further gains to its technical consolidation, it is obvious that the momentum has largely been lost."

Late in New York, the euro stood at $1.3595 compared with $1.3551 late Thursday. The dollar was quoted at 120.05 yen, compared with 120.37 yen.
On the week, the dollar gained 0.4% versus the euro and 0.5% against the yen.
The British pound traded at $1.9935 vs. $1.9878. The dollar also changed hands at 1.2109 Swiss francs, compared with 1.2161 francs.
The euro fetched 163.32 yen, compared with 163.16 yen.

Brian Dolan, director of research at Forex.com, a division of Gain Capital, said while the dollar managed to end the week higher for the first time in three weeks, "the overall trend of a lower dollar still seems to be intact as the fundamental picture has not changed significantly."
"Next week should see the dollar resume weakening in light of mostly bullish events for the euro and pound and likely bearish events for the dollar," he said.
Fed outlook
April's employment report is the last key economic release before the Federal Open Market Committee's interest-rate meeting next Wednesday.
The Fed is expected to hold rates steady at 5.25%, where rates have been since last summer, given uncertainties about whether the economy will slow enough to gradually bring down inflation.
Expectations of an interest rate cut through the first half of the year declined slightly, but increased through the end of the year, the federal funds futures market showed Friday.
Traders were pricing in a 4% chance that the Federal Reserve will lower its target for overnight rates to 5% from 5.25% by late June, down from 6% late Thursday. The futures market suggested a cut in overnight rates to 5% through the end of the year is a near certainty.
Ashraf Laidi, chief foreign-exchange analyst at CMC Markets in New York, said that with recent data showing softening inflation, weakness in employment and further slowdown in the housing and manufacturing sectors, "the Federal Reserve will have no choice but to maintain its downgraded growth outlook, while softening its inflation preoccupation."
"This should be a fresh recipe for further dollar declines as it opens the door for a 0.25 percentage point rate cut as early as August," he said.
Australian dollar loses
In other trading, the Australian dollar dropped sharply after the Reserve Bank of Australian lowered its near-term inflation forecasts in its quarterly statement on monetary policy.
"In recent months the decline [in inflation] appears to have been a little faster than originally expected, and it now seems likely that underlying inflation will be about 2.5 per cent, or possibly a little lower, during 2007. Inflation as measured on a year-ended basis by the [consumer price index] will fall below 2 per cent over the next couple of quarters," the bank said in a statement.