Dollar drops after feeble US wage growth data

The dollar fell against other major currencies Friday after an extremely weak report on US worker pay raised questions about Federal Reserve plans to raise near-zero interest rates this year.

Wages and salaries rose 0.2 percent in the second quarter, decelerating from 0.7 percent growth in the first, the Labor Department said. Analysts noted it was the smallest growth in civilian employment costs on record.

"The central question is whether this very sharp and unexpected decline in wages and salaries will trigger alarm bells at the Fed, causing a delay for the first rate hike," said Ozlem Yaylaci, US economist at IHS Global Insight.

The dollar, which has been on a strong run-up in the past weeks, shed 0.5 percent as the euro bought $1.0984 and slipped 0.2 percent against the yen at 123.91 yen.

"The US Employment Cost Index, not typically a market mover but rather a peripheral data point that only more serious fundamental-leaning traders watch, proved to be a seismic powder keg," said Christopher Vecchio at DailyFX.

"Wage growth in the US -- something Fed policymakers have said they expect to increase and are watching to increase before rates are raised -- just plummeted to its weakest pace of growth since 1982."

2100 GMT Friday Thursday

EUR/USD 1.0984 1.0931

EUR/JPY 136.10 135.70

EUR/CHF 1.0603 1.05951

EUR/GBP 0.7029 0.7008

USD/JPY 123.91 124.15

USD/CHF 0.9652 0.9693

GBP/USD 1.5626 1.5509