Dollar jumps as US unemployment falls unexpectedly

NEW YORK — The dollar steamed higher Friday as a government report showed U.S. unemployment falling for the first time in 15 months, surging up alongside equities in an upending of its normal trading pattern.

“Finally the U.S. dollar rallies for the right reasons,” said Ashraf Laidi, chief market strategist at CMC Markets.

The way the dollar usually trades is counter to stocks. It has tended to benefit in the past year from bad news due to its “safe haven” status. Spooked investors would cut their holdings of equities, foreign currencies and other riskier investments and barrel for the dollar and the U.S. government debt it could buy.

The flip side of that meant that, ironically, the dollar has dropped in value throughout the spring and summer as companies release better-than-expected corporate earnings and many economists think the recession, if it hasn’t ended already, will be over soon.

The 16-nation euro tumbled to $1.4172 in late trading from $1.4340 late Thursday. The British pound dropped to $1.6668 from $1.6776.

The dollar also rose to 97.63 Japanese yen from 96.85 yen, peaking at 97.78 yen, the dollar’s highest point since mid-June.

The Labor Department said on Friday that employers cut 247,000 jobs last month, the smallest amount in a year. The unemployment rate dropped to 9.4 percent from 9.5 percent in June. Analysts had expected joblessness to grow to 9.6 percent.

The unemployment rate hasn’t fallen in 15 months.

The report signaled the beginning of a faster-than-expected economic recovery, said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon. It shows “the economy has stabilized, full stop,” thanks in part to the aggressive $787 billion stimulus package from the government and the Federal Reserve’s cutting interest rates, ramping up lending to financial institutions and buying long-term Treasurys, he said.

And the dollar, unexpectedly, rose on Friday rose in tandem with markets. The Dow Jones industrials closed up 1.2 percent, while the broader Standard & Poor’s 500 gained 1.3 percent. The dollar index, which measures the dollar against a basket of currencies including the yen and euro, was up 1.3 percent.

“The negative correlation between them appears to have been drawn into question — at least temporarily,” Woolfolk said. Since the onset of the financial crisis, he said, there’s been an 85 percent correlation between the Dow Jones industrial average’s moves and the euro’s trade against the dollar. That means when the Dow’s up, the dollar’s down; when the Dow’s down, the dollar’s higher.

At some point during the economic recovery, a positive pattern between stocks and the dollar — a currency’s traditional trading pattern — will be cemented, Woolfolk said, and perhaps even before the Federal Reserve starts raising interest rates.

Raising the interest rate from its current range near zero would boost the dollar, as it would make returns on investments more lucrative and attract funds from investors.

The dollar could benefit if the U.S. returns to growth faster than other major economies, and it could also benefit from a return to “crisis conditions,” Woolfolk said. However, the likeliest situation will be more “bumps in the road” on the path to economic recovery, he said, and the dollar will continue to struggle due to the very low interest rates in the U.S.

Brown Brothers Harriman analyst Marc Chandler too cautioned that “one day a trend does not make.”

The dollar’s push lower is nearing an end, though, he said, and could start rising firmly by the end of the third quarter, when many economists expect the U.S. economy to grow. “The dollar will be rewarded as the economy recovers and U.S. rates rise,” he said, and today’s reaction to the jobs data was “a small, preliminary taste of what we expect to materialize later this year.”

In other late trading, the dollar rose to 1.0827 Canadian dollars from 1.0788 late Thursday, and was up to 1.0830 Swiss francs from 1.0656.