By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The dollar held modest gains against the euro on Friday after a U.S. government report showed the economy added fewer jobs than expected last month.
Continuing debt problems in Europe weighed on the region’s single currency, blunting the response to the U.S. payrolls data.
However, the greenback turned down against the Japanese yen, as Japan’s currency tends to more closely follow moves in Treasury yields, which turned lower after that data.
The dollar index (DXY 80.78, -0.01, -0.02%) , which tracks the U.S. unit against a basket of six currencies, traded at 80.929 from 80.802 in late North American trading Thursday. It rose as high as 81.087 earlier.
The euro (EURUSD 1.2993, -0.0013, -0.1000%) slipped to $1.2975 from $1.3016 Thursday after hitting its lowest level versus the dollar since September. See real-time currency quotes and tools.
Against the Japanese currency, the dollar (USDYEN 83.1100, -0.2500, -0.3000%) turned down to 83.18 yen, from ¥83.36 late Thursday.
The British pound (GBPUSD 1.5570, +0.0086, +0.5560%) turned up 0.2% versus the U.S. unit to $1.5515.
The Labor Department said the U.S. added 103,000 jobs in December, while data for November and October were revised higher.
The unemployment rate dropped to 9.4% because people left the workforce, while economists expected it to remain steady at 9.8%. Read about payrolls report.
“Job creation remains anemic and insufficient to bring down the unemployment rate,” said Brian Dolan, chief currency strategist at Forex.com. “The dollar is in greater demand and the euro remains among the most beleaguered currencies.”
But many in the market were pricing in an even stronger number after Automatic Data Processing earlier this week estimated a 297,000 rise in private-sector payrolls in December. Read more about the ADP data.
Economists polled by MarketWatch Thursday expected 175,000 nonfarm jobs to have been created in December, up from a 143,000 estimate just a few days ago. Read more on U.S. jobs outlook.
One factor limiting the dollar’s gains is investors’ understanding that the economic data remain far too weak to stop the Federal Reserve from completing its quantitative-easing program — a type of monetary policy that tends to weaken a country’s currency because it is akin to printing money.
On Friday, Fed Chairman Ben Bernanke said during Congressional testimony that he was still concerned about the slow improvement in the labor market and that there was still a risk of deflation. Read about Bernanke’s testimony.
The Fed wants the unemployment rate to move closer to 8%, Dolan said.
“At this rate of improvement, it could take four to five more years for the job market to normalize fully,” Bernanke said in prepared remarks.
The euro was also weighed by renewed pressure on the periphery of the euro zone. Read about renewed turmoil in the euro zone.
The U.S. payrolls data “will tend to do less for generating broad dollar strength than it will in simply pushing the focus back on the euro, where it remains tough to conjure up a positive short-term story,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank.
Renewed pressure on bonds in the euro-zone periphery, as well as pressure on Belgian debt, helped drag down the single currency, strategists said. Fears that rising borrowing costs could force Portugal to seek a bailout were renewed as Lisbon outlined plans Thursday to tap credit markets next week.
Proposals to potentially require senior debtholders to take write-downs in the event of future bank crises also led to a selloff in peripheral bonds, pushing higher bond yields and the cost to insure the debt.
