The euro accelerated its gains against the dollar on Friday after weaker-than-expected US labor costs caused a sharp sell-off of the dollar. The employment cost index in the US fell to 0.2% in the second quarter from 0.7% in the first quarter. This was well short of estimates of 0.6%.
The euro briefly broke through the 1.11 handle before dropping back slightly to 1.1084 in late European session. It was also higher against the pound at 0.7086, while against the yen, it hit a 3-week high of 137.34.
The dollar fell across the board, erasing its gains since Wednesday after the FOMC statement. The Chicago PMI coming out soon after the start of US session provided some support to the dollar, helping it stabilize. The index beat estimates of 50.8 for July to come in at 54.7, which is sharply higher than June’s 49.4. This was in contrast to the University of Michigan final consumer confidence index for July which disappointed as it was revised down to 93.1 from 93.3.
The greenback dropped back below 124 yen to 123.65 yen and was also lower against sterling. Cable jumped to as high as 1.5677 and was last trading at 1.5644 in late European session.
Gold prices benefited from the dollar’s slide, jumping 2% to $1103.41 after having drifted lower for much of the day. It later settled to around $1098.
Eurozone inflation and unemployment data had limited impact on the euro. Euro area unemployment was unchanged at 11.1% in June, against expectations that it would fall to 11.0%. But July flash CPI came within estimates of 0.2%, unchanged from the previous month. Core CPI was stronger though, rising to 1.0% in July from 0.8%, and above forecasts that it would stay steady. With the headline rate still running close to 0%, the rise in the core rate might ease concerns that deflation could return in the Eurozone.
The Canadian dollar fell to a one-week low against the greenback after monthly GDP data showed GDP contracting 0.2% in May, versus forecasts that it would stay unchanged. But following the dollar’s plunge, it reversed its losses as the greenback dropped back below the 1.30 handle to 1.2989.
The aussie jumped to one-week highs against the dollar, climbing to 0.7366 from a day’s low of 0.7234, before settling around 0.7344. The kiwi saw a similar move as it jumped to 0.6672, before easing to 0.6641.
Next week could see further volatility for currency markets with central bank decisions and US jobs data coming up. But before then, manufacturing PMI for China due on Saturday will be interesting to watch as official figures have in recent months shown stronger performance than private surveys. July’s reading is expected to show manufacturing activity in China remaining neutral at 50.1.