ECB Indecision Fuels Euro Slide, Dollar Rebound After Jobs Miss

(Bloomberg) -- The euro fell and the dollar pared losses on reports European Central Bank officials may still be a ways away from detailing plans to scale back asset purchases, reversing earlier moves triggered by below-consensus gains in U.S. jobs and wages.

The Bloomberg Dollar Spot Index fell as much as 0.6 percent before trimming the loss to less than 0.1 percent after news broke that ECB policy makers may not finalize a decision on next year’s bond-purchase program until December. The euro, which initially jumped as high as 1.1980 after a soft U.S. August payrolls print, quickly sank into the 1.1870 range. The Canadian dollar surged as traders ratcheted wagers the Bank of Canada will hike interest rates for a second time in two months next week.

• Institute for Supply Management data showed manufacturing ramped up last month to the fastest pace of expansion in six years, with the ISM jobs gauge at the highest level since June 2011.
• USD initially fell after the U.S. added just 156k jobs in August, vs est. 180k; unemployment rate rose from 4.3% to 4.4%; average hourly earnings rose 0.1% m/m, missing expectations of a 0.2% gain
• Though the headline jobs miss may not be a “death knell” for the dollar, says Jefferies strategist Brad Bechtel, the average hourly earnings miss is more concerning longer term, given its implications for inflation
• EUR/USD gained as much as 0.6% as it approached 1.2000 level, but reversed after ECB news to trade down ~0.2% as of 12:23 p.m. in New York. Large expiries at 1.1850-60 (EU1.75b), 1.1870 (EU1.12b) rolled off, with market eyeing 1.1850/30 bids, according to Europe-based traders
• USD/CAD fell through 1.2400 psychological level to touch 1.2341, the lowest since June 2015; U.S.-Canada 2 year spread turned negative for first time since May of same year
• USD/JPY rose to a session high of 110.47 before settling in 110.00 range, with overall gains amounting to ~0.1%; N.Y. traders eye offers at 110.50, with more layered between 110.85/111.00
• UST 10Y yields traded at ~2.14%, after earlier rising ~4.3bps to hit session high of 2.1657% after strong ISM manufacturing print.
• Analysts suggest that August’s disappointing payrolls won’t deter Fed from announcing its balance-sheet reduction plan next month

--With assistance from Sophie Caronello and Robert Fullem

To contact the reporter on this story: Katherine Greifeld in New York at kgreifeld@bloomberg.net.

To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Greg Chang