NEW YORK, Jan. 8 (Xinhua) -- The U.S. dollar fell against major currencies at the end of a calm week as the U.S. nonfarm employment data were much weaker than expected.
The dollar fluctuated in small ranges in earlier sessions of the week as investors waited for the nonfarm payroll data, which proved disappointing on Friday.
Nonfarm payrolls fell 85,000 in December, according to the Labor Department. It has been widely expected that employment would be flat or just slightly lower. The unemployment rate was steady at 10 percent.
November's small job loss of 11,000 was revised to a small increase of 4,000, registering the first payroll growth in two years.
In December, job losses continued in construction and manufacturing sectors although the manufacturing losses are decelerating. The private service sector added jobs for the second month in a row. But firms are still being very cautious as the biggest improvement in hiring is still in temporary workers.
However, the disappointing report for December does not mean the labor market situation will worsen. Actually average job losses contracted from 199,000 jobs per month in the third quarter to 69,000 jobs per month in the fourth.
"It is probable that we will see actual job gains, on average, during the first quarter," said analysts of IHS Global Insight.
Analysts of the Nomura Economic Research said they continue to believe that the trend in employment is improving and expect payroll growth to turn positive within the next two months.
In the past month, a much stronger-than-expected November payroll report and other encouraging economic reports have boosted expectations for a rate hike sooner than previously estimated by the U.S. Federal Reserve. The dollar strengthened as a correlation between the greenback and safety-haven demand faded.
The December job data cut expectations for a rate hike in any time soon, driving the dollar lower. But there will not be a complete reversal in the dollar gains based solely on this report as investors need more data for trading clues, said analysts.
Other economic reports released during the week were mixed, also suggesting a bumpy recovery from the recession.
Construction spending fell 0.6 percent in November, according to the Commerce Department. Private construction was down 0.7 percent and public construction slipped 0.4 percent.
The Institute of Supply Management (ISM) reported that the December ISM manufacturing index rose to 55.9 from 53.6, the highest reading since April 2006. Orders and production indexes were both above 60. The employment index was above 50 for the third month in a row.
The ISM services industries index edged up by 1.4 points in December, just above the threshold for growth. Index readings higher than 50 signal expansion, while levels below 50 indicate contraction.
U.S. service industries have been hovering near the breakeven point for about four months in a row. The biggest drag continues to be weak employment. The index is consistent with a gradual, painfully slow recovery, said analysts of Nomura Economic Research.
The Pending Home Sales Index, a forward-looking indicator tracking signed but not yet closed sales contracts, fell 16 percent in November, the National Association of Realtors (NAR) reported. It was the first decline after nine months of gains.
The steep decline confirms that the first time homebuyer tax credit played an important part in boosting sales over the last several months, and that sales are likely to slump in the near future before picking up in the spring with support from the extended tax credit.
The Commerce Department reported that factory orders increased by 1.1 percent in November, more than an increase of 0.5 percent generally expected. Orders and shipments of core capital goods were both revised higher, suggesting more momentum in investment spending.
Minutes from the December meeting of the Fed, which were released on Wednesday, suggested that policy makers of the U.S. central bank remain cautious about the economic outlook. Although some incoming data had been better than expected, members of the Federal Open Market Committee (FOMC) agreed that overall news had been "broadly in line with projections for moderate growth."
The weak labor market remained an important concern to FOMC members. Some members noted that the Fed may have to expand and extend asset purchases beyond the first quarter to provide more stimulus.
Japan's new Finance Minister Naoto Kan said Thursday on his first day in office that he would work closely with the Bank of Japan to steer the yen toward an appropriate level around 95 to the dollar. The yen touched its lowest level in about four months against the dollar during the Thursday session.
The euro bought 1.4413 dollars in late Friday New York trading, about 0.6 percent higher than a week ago. The British pound fell 0.7 percent to 1.6032 dollars.
The dollar fell 2 percent and 1.1 percent respectively during the past week to 1.0319 Canadian dollars and 1.0238 Swiss francs and rose 0.3 percent to 92.34 Japanese yen.
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