Dollar Drops After Jobs Report

NEW YORK (MarketWatch) -- The dollar edged lower against the euro and the yen early Friday after a government report showed the U.S. economy created fewer-than-expected jobs last month.

The Labor Department said nonfarm payrolls expanded by 88,000 in April, lower than the 100,000 expected by economists surveyed by MarketWatch. The unemployment rate ticked higher to 4.5% from 4.4%, in line with expectations. Average hourly earnings increased 4 cents, or 0.2% to $17.25, vs. expectations of a 0.3% gain.

"The dollar slipped following the slightly softer than expected non-farm payroll print, though losses so far have been limited, and fleeting," said analysts at research firm Action Economics. "The data were not soft enough to alter the near term U.S. outlook, and given the market is still seen as short of dollars overall, position squaring could continue to support the greenback into the weekend."

"We're still holding above key short-term dollar support," said Brian Dolan, director of research at Forex.com, a division of Gain Capital. "Don't expect any movements of significance" until the euro breaks 1.3590 on the upside or 1.3520 on the downside, he said.

In early New York trading, the euro stood at $1.3584 compared with $1.3551 late Thursday. The dollar was quoted at 120.04 yen, compared with 120.37 yen.

The British pound traded at $1.9909 vs. $1.9878. The dollar also changed hands at 1.2127 Swiss francs, compared with 1.2161 francs.

The euro fetched 163.06 yen, compared with 163.16 yen.

April's employment report is the last key economic release before the Federal Open Market Committee's interest-rate meeting next Wednesday. Economists do not believe the data will move the Federal Reserve off the sidelines.

The Fed is expected to hold rates steady at 5.25%, where rates have been since last summer, given uncertainties about whether the economy will slow enough to gradually bring down inflation. Consumer prices have remained stubbornly above the central bank's perceived comfort zone despite average growth just above 2% over the past year.

Australian dollar loses

In other trading, the Australian dollar dropped sharply after the Reserve Bank of Australian lowered its near-term inflation forecasts in its quarterly statement on monetary policy.

"In recent months the decline [in inflation] appears to have been a little faster than originally expected, and it now seems likely that underlying inflation will be about 2.5 per cent, or possibly a little lower, during 2007. Inflation as measured on a year-ended basis by the [consumer price index] will fall below 2 per cent over the next couple of quarters," the bank said in a statement.

The central bank, however, warned that in the longer-term, "it seems unlikely that inflation will continue to decline."

A report showing a much larger-than-expected Australian trade deficit for March also weighed on the currency.