Dollar extends gains from jobs report as bond yields jump

Julianne Pepitone, CNNMoney.com contributing writer
On Monday June 8, 2009, 7:53 am EDT

The dollar jumped against a basket of currencies Monday, extending Friday's gains, as a credit downgrade for Ireland pushed the euro lower.
Early on Monday, credit-rating agency Standard & Poor's downgraded Ireland's credit rating to AA from AA-plus -- its second cut in three months.
S&P's statement said Ireland's credit outlook remained negative, noting the nation's suffering banking system.
The euro was down 1% against the dollar, at $1.3828.
The rating cut helped the greenback extend Friday's gains, coming off a report that job losses slowed dramatically in May. Employers cut 345,000 jobs from their payrolls in the month, down from the revised decline of 504,000 jobs in April. Economists surveyed by had forecast a loss of 520,000 jobs.
The report sparked speculation the U.S. Federal Reserve may lift interest rates early next year, in turn pushing bond yields higher Monday.
An increase in yields tends to lead to higher demand for bonds, boosting the greenback because U.S. assets must be purchased in dollars.
But Jessica Hoverson of MF Global warned "the economic recovery theory has already been priced into the market," although the jobs data were better than expected.
"The unemployment rate was 9.4%," she observed in a research note. "Though the pace of job loss is slowing, there is no hiring activity."
With government intervention high and consumers still struggling, residual uncertainty "will likely prolong high levels of unemployment," weighing on the dollar, she wrote.
The British pound was down 0.47% against the dollar to trade at $1.590.
The dollar was little changed against the Japanese yen. Both currencies are considered safe havens in an uncertain economy.