Dollar Rally Proves Short-Lived Post-Jobs as U.S. Election Looms

(Bloomberg) -- A dollar rally on jobs growth proved short-lived as attention swung back to Tuesday’s U.S. presidential election.

The greenback fell for the sixth straight day in the longest stretch of losses since March even after a report showed the U.S. added 161,000 jobs in October, supporting a Federal Reserve interest-rate increase next month. The October employment increase was just shy of the median forecast of 173,000 in a Bloomberg survey of economists, while the prior month’s figure was revised higher.

"It would be difficult for the market to move much given the elections on Tuesday," said Andres Jaime, a foreign-exchange strategist in New York at Barclays Plc. "For the dollar, given that the market is already pricing in a high probability for a hike, it already corroborates what’s already priced in."

Dollar traders are already turning their attention to the vote for the White House as the race between Democratic nominee Hillary Clinton and Republican candidate Donald Trump tightens. Clinton’s odds of victory have declined over the past week, coinciding with a five-day slump in the currency amid investor concern that Trump, who is perceived to be more unpredictable than his Democratic rival, would be likely to upend U.S. trade agreements.

The Bloomberg Dollar Spot Index fell 0.2 percent as of 5 p.m. in New York, after gaining as much as 0.2 percent. The greenback lost 0.3 percent to $1.1141 per euro and added 0.1 percent to 103.12 yen.

"The market reaction appears to be relatively subdued because the market is distracted by the presidential election," said Paresh Upadhyaya, director of currency strategy in Boston at Pioneer Investments, which oversees about $245 billion.

Economic Reading

The dollar eked out an early advance after the data showed wage growth picked up, a sign inflation may quicken toward the Fed’s 2 percent target. Average hourly earnings rose 0.4 percent from a month earlier while the year-over-year increase was 2.8 percent, compared with 2.7 percent in the year ended in September.

"This very much supports the case for a December hike -- the bar remains quite low," said Ian Gordon, a foreign-exchange strategist at Bank of America Corp. in New York.

The 76 percent probability traders are assigning to a rate hike by December is up from 69 percent on Oct. 28, according to data compiled by Bloomberg. The numbers have remained high even as Clinton’s chances of victory slipped to 65 percent according to poll aggregator FiveThirtyEight, from 82 percent last week. Her narrowing lead has extended the greenback’s loss this year to 3 percent.

Hedge funds and other speculators have much to lose if the rally continues to fizzle. They have been wagering on dollar gains since May, pushing up net bets that the greenback would rise to 209,686 contracts, the most since February in the week ended Nov.1, according to data from the Commodity Futures Trading Commission.

To contact the reporters on this story: Susanne Barton in New York at swalker33@bloomberg.net, Tatiana Darie in New York at tdarie1@bloomberg.net. To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Paul Cox, Michael Aneiro