Dollar falls from three-week high after US jobs data

NEW YORK: The dollar fell on Friday after US non-farm payrolls data showed hiring increased in May as the pandemic eased, but not quite as much as expected, tempering expectations the Federal Reserve will tighten monetary policy sooner, rather than later.

Nonfarm payrolls increased by 559,000 jobs last month, helped by higher COVID-19 vaccination rates, while the unemployment rate fell to 5.8% from 6.1% in April, when the jobs report came in well below expectations.

The consensus forecast was for 650,000 jobs added in May.

"This payroll number was a little disappointing," said Edward Moya, a senior market analyst at OANDA.

The softer-than-expected report means there is no urgency for the Fed to begin tapering its monthly purchase of $120 billion in bonds to support the economy, he said.

"Bad news about the economy is good news for an ultra-accommodative Fed, which is going to keep the dollar on the ropes," Moya said.

At 9:20 ET, the dollar index was down 0.403% at 90.114, dropping from a three-week high earlier in the session.

The dollar had rallied on Thursday, notching up its biggest daily gain in a month, after weekly US jobless claims fell below 400,000 for the first time since the pandemic started more than a year ago and private payrolls increased by significantly more than expected.

Investors were heavily short dollars headed into the jobs report, positioning data showed, pointing to a market hypersensitive to any suggestion of a change in direction for the currency or a shift in the rates outlook.

Overnight implied dollar/yen volatility shot up to a month high above 8% on Thursday and euro/dollar implied volatility hit its highest since mid-March.

Foreign exchange strategists in a Reuters poll were almost evenly split on the dollar's near-term direction following two months of broad weakness, as they await clearer signs from policymakers.

The euro was up 0.33% at $1.21670 versus the dollar .

The Australian dollar, which had dropped to its lowest since April on Thursday, jumped 0.78% to 0.77205, while the New Zealand dollar was up 0.64% at 0.71905.

The Japanese yen slid 0.53%, changing hands at 109.715 versus the dollar.

China's yuan softened past the 6.40 level, having shrunk away from its three-year highs when China's central bank moved to limit the currency's gains earlier this week.

US President Joe Biden signed an executive order on Thursday that bans US entities from investing in dozens of Chinese companies with alleged ties to defence or surveillance technology sectors, a move his administration says expands the scope of a legally flawed Trump-era order.

Cryptocurrencies fell after a tweet from Tesla boss Elon Musk appeared to lament a breakup with bitcoin.

Tesla's big position in bitcoin and Musk's large personal following often set crypto markets on edge whenever he tweets.

Both bitcoin and ether, the two biggest cryptocurrencies, were down around 6.4%, with bitcoin at around $36,700 , and ether at around $2,640.