By Andrew J. Johnson Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The dollar rallied Friday after nonfarm payrolls surprised to the upside, reversing some of the losses suffered in the wake of the Federal Reserve's stimulus plan.
Also, investors were not encouraged by euro-zone debt issues, which contributed to the euro's losses, according to analysts.
"The market seems to only have room for one idea at a time, which is too bad, because the currency market is actually quite complicated," said Win Thin, global head of emerging markets strategy at Brown Brothers Harriman in New York.
"Problems in the [euro zone's] periphery never went really away," he said, adding it is just that laser focus remained on a potential QE plan these past few months.
"European banks are holding a lot of Greece's debt and they will take a big hit" in a potential restructuring, said Thin. "That's likely a 2012 story but it's just a matter of timing, when do you sell?"
Nonfarm U.S. payrolls rose by a greater-than-expected 151,000 last month as private-sector employers added 159,000 jobs, the Labor Department said Friday. The September number was revised to show payrolls fell by 41,000, milder than an original estimate of a decline of 95,000.
While most investors paid attention to QE, Greek, Irish and Portuguese credit default swap spreads have continued to widen in recent weeks, indicating heavy financial stress at the edges of the euro zone. The cost of credit default swaps written on Ireland sovereign debt dropped below 600 basis points at around midday Friday, after rising 28 basis points to a record high of 610 basis points earlier Friday.
The euro dropped more than 1% against the greenback immediately following Friday's good U.S. data, reaching an intraday low just after noon EDT. Meanwhile, the dollar gained a solid 0.7% versus the yen during choppy trading following the U.S. data.
To see the euro's performance against the dollar, please see:
http://www.dowjoneswebservices.com/chart/view/4897
In the post-indicator fray, the Canadian dollar also reached parity for the first time since Oct. 14.
Early Friday afternoon, the euro was at $1.4029 from $1.4215 late Thursday, according to EBS via CQG. The dollar was at Y81.35 from Y80.70, while the euro was at Y114.15 from Y114.69. The U.K. pound was at $1.6199 from $1.6280. The dollar was at CHF0.9628 from CHF0.9585.
The ICE Dollar Index, which tracks the U.S. currency against a trade-weighted basket of others, was at 76.606 from 75.853.
While the jobs report provided optimism about the U.S. economy, it was not viewed as a game changer after the Fed announced $600 billion worth of Treasury purchases earlier in the week, said analysts.
"The Fed has said a stronger number here or there wouldn't change policy," so the dollar will likely again be on the defensive before too long, said Hans Redeker, global head of foreign exchange strategy at BNP Paribas in London.
But the data turned attention to the euro, which has ridden a wave of momentum as the prospect of dollar-diluting quantitative easing loomed for weeks, said analysts.
Even Germany, among the strongest of euro nations, wasn't viewed as immune to fiscal strains as demonstrated by news on German bank Westdeutsche Landesbank Friday, said Redeker.
The European Commission said Friday it is extending its probe into state funding received by German bank Westdeutsche Landesbank, known as WestLB, after calculating the bank has received 3.4 billion euros more in aid than previously envisaged.
The Canadian dollar was higher Friday after the stronger-than-expected U.S. October jobs data. The U.S. dollar traded at C$1.0006 late Friday from C$1.0032 late Thursday.
A disappointing early-afternoon National Association of Realtors' pending home sales index did not have much effect on currency markets.
Separately, while most positions remained little changed, investors heavily ramped up bets in favor of the U.K. pound last week, pushing prosterling bets to a net long value of $1.5 billion from last week's reading of around $500 million, according to a Scotia Capital analysis of the weekly Commitments of Traders report released by the U.S. Commodity Futures Trading Commission late Friday afternoon.
With the ICE Dollar Index strengthening, Deutsche Bank's PowerShares U.S. Dollar Index Bearish exchange-traded fund was down 0.82% from late Thursday, while its PowerShares U.S. Dollar Index Bullish fund was up 1%. The two exchange-traded funds are based on Deutsche Bank currency-futures indexes, whose composition mirrors that of the ICE's Dollar Index.
-By Andrew J. Johnson, Dow Jones Newswires; 212-416-3092; andrewj.johnson@dowjones.com
(Irene Chapple in London, Carolyn Henson in Brussels and Bradley Davis in New York contributed to this article.)
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