Dollar Falls on Weak US Jobs Data and QE3 Speculation

on Sep 14, 2012

The US dollar fell against other major currencies after weak US jobs data fuelled speculation about a third round of quantitative easing by the Federal Reserve, the Financial Times reported on 7 September 2012.

US labour department data showed that US employers added 96,000 jobs in August, missing initial estimates of 125,000. The disappointing employment figures in turn increased the likelihood of the Fed implementing QE3.
As a result of the jobs data and QE3 expectations, the greenback fell against the euro, the pound and the Australian dollar. The FT reports that the euro in particular advanced versus the dollar on account of both the US employment figures and stronger risk appetite in the markets after the European Central Bank (ECB) presented its bond-buying scheme. According to Bloomberg data, the dollar went down by 1.5 percent, reaching $1.2816 per euro at 5 p.m. in New York on September 7, its lowest level since May 22. “As the disappointing US jobs data increases the likelihood of a balance sheet response by the Fed next week, and the Draghi-induced euphoria continues, the US dollar has suffered”, pointed out Marc Chandler, head of currency strategy at Brown Brothers Harriman, as quoted by the FT. The euro also advanced against the pound, gaining 0.7 percent to £0.7994.

!m[](/uploads/story/371/thumbs/pic1_inline.png)The US dollar lost ground against the sterling as well, with the pound rising 0.5 percent to $1.6033. The Aussie rose one percent against the greenback, reaching $1.0397, as reported by the FT. According to Bloomberg, the US dollar lost 0.8 percent to the yen, falling to Y78.24. The Dollar Index (DXY), which measures the greenback versus the currencies of six major trading partners, fell 1.1 percent to 80.172, its weakest level since May 11. “You’re getting this pop because people are looking at these numbers as disappointing and Mr. Bernanke told us that he was very concerned and frustrated with progress in the labour markets, so the market is reading into this,” noted Nick Bennenbroek, head of currency strategy at Wells Fargo & Co (NYSE:WFC), as quoted by Bloomberg.

At his much anticipated Jackson Hole speech in Wyoming at the end of August, the Fed chairman Ben Bernanke suggested that the US central bank could and should help fight unemployment, as the Huffington Post reported at the time. Yet, no clear indication as to when the Fed would act left analysts speculating. “September is still possible and if it’s not September, it increases likelihood of October and December,” notes Mr Bennenbroek, as quoted by Bloomberg.

The US unemployment report also helped Mexico’s peso, which posted its biggest weekly gain since June, Bloomberg reported on September 8. The peso rose 0.6 percent to 12.9808 per U.S. dollar, pushing the weekly advance to 1.6 percent. “While the report in the U.S. came out bad, below expectations, it reinforces a bit the idea that the Fed has to act,” said Rafael Camarena, an economist at Banco Santander (NYSE:SAN), as quoted by Bloomberg. “That’s helped the peso.”

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