* U.S. employment data mixed
* Offshore yuan on pace for largest 2-day rise since launch
* Dollar falls vs yen, euro, Swiss franc
(Recasts opening, adds data, quote)
By Dion Rabouin
NEW YORK, Jan 5 The dollar fell to a three-week
low against a basket of major currencies on Thursday after U.S.
inflation and unemployment data failed to reverse a downtrend
that followed some of the biggest gains on record for China's
A rise in overnight borrowing costs in Hong Kong and growth
in China's services sector to a 17-month high last month helped
put the offshore yuan on pace for the biggest two-day rise since
its inception in 2010.
That in turn triggered profit-taking on the dollar, which
fell to its lowest since Dec. 14 as more investors piled on.
The dollar index, a measure of the greenback against
six world currencies, dropped 1.3 percent to 101.370. The index
is on pace for its worst one-day percentage loss since Sept. 6.
The dollar's steep dive was the result of investors having
to reduce or reverse bets on the greenback as momentum shifted
in the market, said Deutsche Bank's Global Head of FX Strategy
"If you're looking for any catalyst it was China ... and it
turned into a cascade and into a squeeze in a lot of the favored
trades that we started the year with," he said.
The dollar was last down 1.65 percent against the yen and
more than 1.1 percent lower versus the euro and Swiss franc.
It was the greenback's lowest against the yen since Dec. 14
and lowest against the euro and Swiss franc since Dec. 30.
Investors shook off promising data on the U.S. economy,
including the Institute for Supply Management's
non-manufacturing purchasing managers index, which showed new
orders and prices paid at their highest levels since August 2015
and August 2014, respectively.
U.S. jobless claims fell to a 43-year low last week, but
that data was countered by a soft report from payrolls processor
ADP showing employment gains were muted in December.
That put the dollar back on its lower trajectory after a
brief stall following the release of the jobless claims figure
as investors refocused attention on China's strong yuan.
"All we're seeing is a continuation of the overnight move,
which is dollar weakness," said Chapdelaine Foreign Exchange
Managing Director Douglas Borthwick. "Obviously that's also
helped by the significant intervention by the Chinese
Borthwick also said sentiment was growing among investors
that the dollar's strength has peaked as many return to markets
after the Christmas and New Year holidays.
(Reporting by Dion Rabouin; Editing by Lisa Von Ahn and Andrea