Dollar hit by US jobs disappointment

The US dollar tumbled sharply for a second day after the release of dismal US jobs data for March led traders to reassess the prospects for Federal Reserve rate rises this year.

Trading was thin due to the Good Friday holiday, but the greenback slid almost 1 per cent versus the euro to trade above $1.1 again after just 126,000 jobs were created last month, compared to expectations for a 245,000 reading.

None of the 98 economists polled by Bloomberg had forecast such a low figure, and adding to the pressure against the dollar, last month's job creation was revised down from 295,000 to a more muted 264,000.

The dollar index, which measures the US currency against a basket of its biggest counterparts, fell 0.7 per cent to a two-week low of 96.72.

With many currency traders sidelined by Easter, attention during much of the week focused on negotiations between eurozone authorities and Greece over bailout terms. Some signs of progress, along with favourable manufacturing data, helped reverse a sharp fall in the euro against the dollar at the start of the week.

The week also marked the end of a quarter which witnessed the euro's biggest quarterly drop since its creation in 1999, a period of significant volatility which has brought numerous warnings from analysts about significant structural changes in the forex market.

Paul Lambert, head of currency at Insight Investment, the investment fund of BNY Mellon, said: "Volatility is going to be a longer-running issue, and these type of events are likely to come along more frequently."

Big intraday shifts in the euro-dollar pair were in itself not alarming, said Mr Lambert. "What would be alarming is the kind of moves we might get in the euro if there is a Greek exit."

"Small events are moving the market significantly. When we get another big event, the reaction is likely to be much bigger than we've seen in the past."

Eurozone problems were highlighted in the release of the International Monetary Fund's quarterly update on currency reserves which showed a further slump in the share of euros held by central banks in the fourth quarter, while the dollar's share rose.

The IMF data also revealed the first fall in foreign currency reserves in emerging markets for two decades, a decline likely to continue in the first quarter.

The Australian dollar was one of the worst performing of the major currencies, suffering a 2 per cent fall against the US dollar as the market weighed up the prospect of a rate cut next week.

Amid worries about the fall in iron ore prices and its impact on Australian trade, the Aussie dollar is also heading towards parity with its New Zealand counterpart. But the kiwi was not immune, as dairy prices disappointed.

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