Dollar's correction extends for a third week

Currency traders cold-shouldered signs of a pick-up in the US economy, underlining that the correction in the dollar bull run has not yet run its course.

Closely watched US employment data, along with the UK election, constituted the major events of the week for the foreign exchange trading landscape. US jobs expanded by 223,000 during April, in line with expectations, and reduced the unemployment rate by 0.1 percentage points to 5.4 per cent, the lowest level since mid-2008.

But there was barely a scintilla of change in the dollar index, which measures the greenback against a basket of its peers, while the dollar made only a slight gain on the euro.

Strategists said the headline numbers were offset by continuing malaise in earnings growth and a sharp downward revision in the March jobs total. The bond market lowered their estimates of the Federal Reserve raising overnight borrowing costs later this year.

The dollar's robust run during the first quarter hit the buffers in mid-March as lacklustre economic data reduced the likelihood of tighter Fed policy over the summer. That left the dollar index lower for the third consecutive week, down more than 0.5 per cent since Monday.

But most currency strategists expect this to be only temporary and that the US economy will rebound.

Lena Komileva of the consultancy G+ Economics said the jobs numbers were better than feared and supported the Fed's view that transitory factors "have caused no lasting disrepair to the economy".

But for Alan Ruskin of Deutsche Bank, the payrolls data were "softer than expected" and he was surprised traders had not responded more negatively.

The timing of a rate rise has moved further out, in the view of Steven Englander, head of G10 FX strategy at Citigroup.

The market now viewed a June rate rise as "completely out, September as in play but not guaranteed" and December, or no rise at all as "a tail risk that is getting fatter", said Mr Englander.

Warning investors not to try to time a US resurgence too precisely, Mr Englander said there was now a lower risk of losing money from buying the dollar at current levels, given the extent of the currency's recent decline.

The dollar was also more than 1.5 per cent lower against sterling, with the fall heavily influenced by the surprising UK election victory for Prime Minister David Cameron's Conservative party.

Daragh Maher, HSBC currency strategist, said the pound's rise was driven by market relief that the outcome had not resulted in electoral uncertainty and a hung parliament, as opinion polls had persistently suggested.

But he said that relief would soon be replaced by "the next hurdle" - Mr Cameron's manifesto commitment to hold a referendum on UK membership of the EU, which could damage inward investment and weaken sterling.

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