June 1 (Bloomberg) -- The dollar dropped to the lowest in three weeks against the currencies of its major trading partners as reports showed slower-than-forecast jobs growth and reduced factory output, adding to concern the U.S. economy is slowing.
The U.S. currency weakened after a private survey showed employment increased by 38,000 last month, the smallest gain since September and a measure of manufacturing output in May declined more than forecast. Forecasters reduced estimates for May job growth before the June 3 Labor Department report. The Swiss franc rose against all of its 16 major counterparts, reaching a record against the dollar and the euro, as stocks and commodities dropped, spurring haven demand.
“Weak data equals a weak dollar,” said Ray Attrill, a senior currency strategist at BNP Paribas SA in New York. “It’s not surprising to see the dollar weaken substantially on the basis of the data.”
IntercontinentalExchange Inc.’s Dollar Index, which measures the greenback against the currencies of six trading partners including the yen and the euro, fell 0.1 percent to 74.558 at 12:53 a.m. in New York, after declining to 74.36, the least since May 6.
The dollar dropped 0.8 percent to 80.88 yen, from 81.52 yen yesterday. It fell 1.5 percent versus the franc to 84.12 centimes and reached 83.83 centimes, the weakest since at least 1971. The euro rose 0.1 percent to $1.4406.
The Swiss franc strengthened as retail sales rose in April at the fastest rate in two years, boosting speculation the Swiss National Bank may raise borrowing costs. The currency reached 1.20855 per euro, the strongest on record. Retail sales climbed 7.5 percent in the year after a 0.2 percent drop in March, the most since April 2009.
Canada’s dollar and Mexico’s peso dropped the most among the major currencies on the weaker U.S. data. The U.S. is both nations’ biggest trading partner.
The Canadian dollar fell 0.5 percent to 97.36 cents versus the greenback and the peso dropped 0.6 percent to 11.6391 per dollar.
The Standard & Poor’s 500 Index dropped 1.4 percent, snapping a four-day advance, and the Thompson/Reuters CRB Index of raw materials fell 1.2 percent.
U.S. employment increased last month after a revised 177,000 gain in April, according to figures from ADP Employer Services. The median estimate in the Bloomberg News survey called for a 175,000 advance for May.
The Labor Department will release May unemployment figures June 3. Goldman Sachs Group Inc. revised its estimate today for an increase in May nonfarm payrolls to 100,000 from 150,000, while Citigroup Inc. trimmed its projection to 100,000 from 170,000.
The Institute for Supply Management’s factory index fell to 53.5 in May from 60.4 the prior month, the Tempe, Arizona-based group said today. Economists projected the gauge would drop to 57.1, according to the median forecast in a Bloomberg News survey. Estimates of the 83 economists polled ranged from 53 to 60.
“The data has been consistently weak and is really consistent with the view that the U.S. recovery has essentially stalled,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “That would certainly warrant ultra-accommodative policy from the Fed for the foreseeable future and that contrasts with expectations for the European Central Bank to lift rates again in July.”
The Fed has kept its benchmark interest rate at zero to 0.25 percent and won’t raise it until the first quarter of 2012, according to a Bloomberg News survey. Central banks in other developed-nations have begun tightening policy following the recession, including the European Central Bank and the Bank of Canada.
European officials are trying to prevent the euro region’s first sovereign default as investors dump Greek bonds on concern the government won’t be able to meet its obligations.
Investors may be offered preferred status, higher coupon payments or collateral as inducements to buy bonds replacing Greek debt maturing between 2012 and 2014, said two people with knowledge of discussions, who declined to be identified because the talks are in progress.
So-called negative incentives are also under consideration, such as cutting off old Greek bonds from eligibility for use as collateral with the European Central Bank, the people said.
The dollar may drop to less than 80 yen as Treasury yields extend declines, according to Greg Anderson, a senior currency strategist at Citigroup Inc. in New York.
“If the payrolls report comes in weak like the ADP report, and we get U.S. 10-year yields falling below 3 percent and two- year yields dive below 40 basis points, you’re probably going to see dollar-yen fall below 80 yen, with potential to go to 79 or 78 on a short-term dip,” Anderson said in a telephone interview. A basis point is 0.01 percentage point.
Yields on the Treasury 10-year notes fell to less than 3 percent for the first time in 2011.
--With assistance from Lucy Meakin in London and Cecile Vannucci in New York. Editors: Paul Cox, Dave Liedtka
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