U.S. labor data weigh on dollar, Treasury yields

Fri Jul 31, 2015 5:05pm EDT
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By Michael Connor

NEW YORK (Reuters) - The dollar fell and benchmark U.S. Treasury yields touched multi-week lows on Friday as an unexpectedly weak government reading of American labor costs dulled prospects for higher U.S. interest rates.

Wall Street stock prices closed down, after surrendering early gains from the Employment Cost Index data showing the smallest quarterly increase in 33 years. Oil prices declined by 2 to 3 percent on growing worries about global oversupply.

The dollar index fell well over 1 percent before recovering for smaller losses of 0.35 percent. The euro was especially strong and was last up 0.50 percent against the dollar at $1.0984, after trading over $1.11.

Treasuries prices rallied, with yields on benchmark 10-year Treasury notes falling to a three-week low of 2.184 percent. The price was last up 22/32 of a point to yield 2.187 percent.

The 30-year Treasury bond yield fell to a fresh two-month low of 2.9040 percent from 2.9390 percent prior to the data. The price was last up 28/32 of a point to yield 2.9093 percent.

The Employment Cost Index, the broadest measure of labor costs, rose just 0.2 percent last quarter, the U.S. Labor Department reported. Economists had forecast a 0.6 percent rise in the report, which followed a GDP report widely seen as allowing the Federal Reserve to start hiking rates as early as September.

"The magnitude of the miss was definitely a bit of a surprise, especially as people were really gearing up for a September (rate) hike. This definitely puts a lower probability on that," said Stanley Sun, interest rate strategist at Nomura Securities International in New York.

Wall Street's Dow Jones industrial average fell 51.78 points, or 0.29 percent, to 17,694.2, the S&P 500 .SPX lost 4.24 points, or 0.2 percent, to 2,104.39, and the Nasdaq Composite dropped 0.50 points, or 0.01 percent, to 5,128.28.   Continued...

A teller counts U.S. dollars at a money changer in Jakarta, Indonesia May 18, 2015.  REUTERS/Nyimas Laula