Dollar turns down; payrolls ups chance of Fed QE

[WallyWeaver]

Dollar turns down; payrolls ups chance of Fed QE

Dollar spikes versus yen, triggering BOJ intervention rumors

June 1, 2012, 10:29 a.m. EDT

By William L. Watts, V. Phani Kumar and Deborah Levine, MarketWatch

NEW YORK (MarketWatch) — The U.S. dollar turned down against the euro and other major currencies on Friday after much weaker-than-expected U.S. nonfarm payrolls data raised the chance that the Federal Reserve will take action.

The dollar had been up before the data after a round of lackluster manufacturing surveys from China and the euro zone.

Also grabbing currency traders attention, a sharp spike higher by the dollar versus the Japanese yen prompted rumors of intervention by the Bank of Japan, strategists noted.

The dollar index, which measures the greenback’s moves against a basket of six major currencies, turned down to 82.983 from 83.035 late Thursday. It rose as high as 83.542 just after the jobs report, which sent traders scurrying away from riskier assets.

The euro briefly topped $1.24, then lately bought $1.2390 versus $1.2369 in North American trade late on Thursday. The shared currency initially skidded as low as $1.2292 in the wake of the U.S. payrolls figures, according to FactSet Research data.

The U.S. Labor Department said 69,000 jobs were created during May, the smallest increase in a year and well short of economists forecasts. The unemployment rate rose to 8.2% from April’s 8.1%.

The upside for the dollar was limited by concerns that the weakness of the U.S. recovery could spur the Fed to undertake further monetary easing, which usually devalues a currency.

“The takeaway from a report this bad is that it significantly increases the prospect of the Fed easing at the next meeting,” said Ron Leven, senior currency strategist at Morgan Stanley

He expects the Fed to expand its balance sheet by purchase more bonds, not just continuing its current program of buying longer-dated Treasurys and selling shorter-term holdings.

“Quantitative easing makes the system flush with liquidity, making ti easier for people to get funding, and generally what we’ve seen from the last rounds of QE is that it underpins equities and asset valuations,” Leven said.

On Friday, stocks still took the economic data badly, with the S&P 500 Index dropping 1.7%.

Treasury prices jumped, pushing yields to record lows -- benefitting from either higher QE expectations or a rush to the relative safety compared to stocks.

The safe-haven flows into U.S. Treasurys and core bonds is a concern, said Douglas Borthwick, managing director of Faros Trading.

“More and more people are crowding into a shrinking asset space, where the economies (U.S. and Germany) are not faring as well as most had hoped. As the [dollar] is reaching peaks for the year, further QE could see this position under extreme stress,” he said.

Before the U.S. data came out, the dollar had been up, along with risk aversion, after weak economic reports out of China and Europe.

The final May reading of the euro-zone purchasing managers’ index fell in May, underscoring concerns the region’s debt crisis is taking a deepening toll on the manufacturing sector, with even heavyweights such as Germany showing a contraction in activity.

However speculation that the European central Bank may take steps to ease market conditions boosted Spanish, French and Italian government bonds.

Link: http://www.marketwat...data-2012-06-01

[PTguy]

Wow Gold and Silver responded pretty quick to that news.

[WallyWeaver]

Wow Gold and Silver responded pretty quick to that news.

Yep... I have to admit I was a little surprised to wake up this morning and see gold up $50+. Silver is only up $.80+ but it is a bit of a slow trailer to gold. It should go up a bit higher to maintain the recent ratio with gold (50:1).

I suppose if you trade for a living there's no sense in wasting any time. As it becomes more clear that the very sluggish US Economy is not really picking up steam, as the MSM would have us believe (1.9% GDP, only 69,000 jobs added), the Fed will be forced to step in with more liquidity. I don't think there is any question that that's why pm's are up so big this morning.

WW.