FOREX-Safe-haven franc rises as Iran war drags on; dollar dips after US payrolls drop

By Gertrude Chavez-Dreyfuss

NEW YORK, March 6 (Reuters) - The safe-haven Swiss franc rallied across the board on Friday, as the continued escalation of the Middle East conflict spurred a flight to safety, while the U.S. dollar slipped in choppy trading after data showed an unexpected decline in new jobs created in the world's largest economy last month.

The dollar fell 0.4% against the Swiss franc to 0.7778 CHF=, while the euro slid 0.5% to 0.9018 franc EURCHF=.

The franc tends to rally in times of heightened geopolitical tension.

U.S. President Donald Trump on Friday demanded Iran's "unconditional surrender" , viewed as a dramatic escalation of his demands a week into the war he launched alongside Israel.

He also reiterated his desire for a "great and acceptable leader" for Iran. On Thursday, Trump said he wanted to be involved in choosing Iran's next head of state after U.S. and Israeli air strikes killed Supreme Leader Ali Khamenei in the early moments of the war.

On the U.S. economic front, the dollar's decline after a much weaker-than-expected nonfarm payrolls number reflected a slight shift in policy stance -- that the Federal Reserve could cut interest rates sooner than expected.

"Fundamentally not much has changed because oil is still trading at the highs and we don't really have good news on Iran," said Erik Bregar, director, FX & precious metals risk management, at Silver Gold Bull in Toronto.

U.S. crude futures surged on Friday, up 11.2% at $90.16 per barrel CLc1.

He noted that the rally in other currencies against the dollar is likely technical in nature.

"U.S. stocks tried to break new weekly lows, the euro and the Canadian dollar did as well, but that failed so that's why we're seeing this bounce in FX against the dollar," Bregar said. "For the bears to continue to get what they want, we need to see lows get taken out."

Sterling was also up against the greenback, rising 0.2% to $1.3389 GBP=.

POOR PAYROLLS REPORT

Earlier in the session, data showed the U.S. economy lost 92,000 jobs last month after a downwardly revised 126,000 increase in January, while the unemployment rate increased to 4.4%. Economists polled by Reuters had forecast payrolls advancing by 59,000 jobs after increasing by a previously reported 130,000 in January.

"The large downside miss in non-farm payrolls will give the doves at the Fed something to talk about," said David Rees, head of global economics at Schroders in London.

"But at least part of the downside surprise was due to strike action in the healthcare sector that ought to reverse. Beyond that, while the employment report was soft, we doubt it will be long before continued robust growth in the U.S. economy will translate into more sustained demand for labor."

In early afternoon trading, the dollar edged higher against the yen, up 0.1% at 157.63 yen JPY=, giving up some gains after the payrolls miss. On the week, the greenback still climbed 1.1%, its third weekly rise.

The dollar index was slightly down on the day at 99.028 =USD. It rose 1.4% for the week, however, on track for its biggest weekly advance since mid-November 2024.

The euro slipped 0.1% to $1.1597, trimming losses from earlier in the session. On the week, Europe's common currency fell 1.8%, on track for its largest weekly decline since mid-September 2022.

Post-payrolls, U.S. rate futures priced in a 50-50 chance that the Fed would resume rate cuts in June, when new Fed Chairman Kevin Warsh assumes office. It attached a 76% chance that the Fed cuts rates in September, earlier than the October expectations before the jobs data.

The market also sees about 44 basis points of easing this year, compared with around 39 basis points going into the payrolls report. That's still less than two cuts of 25 bps each.