Dollar retreats after soft US labor market data

NEW YORK: The dollar fell on Thursday after a round of weaker-than-expected US employment data, affirming a gradual pace of interest rate hikes by the Federal Reserve as the labor market cools.

The greenback was already on the defensive after Wednesday's issue of the Fed's policy minutes failed to provide a clear picture of future interest rate increases. The slide extended with Thursday's poor set of US economic numbers.

Ahead of Friday's US non-farm payrolls data, the ADP National Employment Report showed private-sector payrolls increased by 158,000 jobs last month, less than the 230,000 positions created in May and below economists' expectations for a gain of 185,000.

In a separate report, the Labor Department said initial claims for state unemployment benefits increased 4,000 to a seasonally-adjusted 248,000 for the week ended July 1. It was the third straight weekly increase in claims.

The US services sector index, released by the Institute for Supply Management on Thursday, rose to 57.4 in June, compared with a forecast of 56.5. The employment index, however, fell to 55.8, compared with 57.8 in May, suggesting a cooling labor market. A reading above 50 indicates expansion.

"Overall, while there were no abnormally large downside surprises in pre-nonfarm payrolls employment indicators for June, there was a general leaning toward the soft side when it came to June's job numbers," said James Chen, head of research at Forex.com in Bedminster, New Jersey. "This could potentially manifest as a continuation of weaker-than-expected employment data this Friday."

Wall Street economists predicted US non-farm payrolls to grow by 179,000 in June, according to a Reuters poll. The US economy created 138,000 jobs in May.

"Any outcome significantly lower than forecast should further dampen Fed expectations and potentially lead to an extended pullback for the dollar," Chen said.

On Wednesday, the latest Fed minutes showed policymakers were split on the outlook for inflation and how it might affect the future pace of interest rate rises.

"Fed minutes confirmed anticipated hawkishness, leaving it only a question of time before the Fed starts its balance sheet-reducing operations," Morgan Stanley said in a research note.

In late trading, the dollar index was down 0.5 percent at 95.828.

The dollar was little changed against the yen, at 113.25 yen , after rising more than 1 percent this week.

The euro, meanwhile, rose 0.6 percent to $1.1418.

The minutes of the ECB meeting nudged the euro higher as bond yields rose, though the single currency hemmed within recent trading ranges.