Bloomberg News

Dollar Declines to Three-Week Low Versus Yen on Growth Outlook

June 03, 2011

June 3 (Bloomberg) -- The dollar fell to a three-week low against the yen before a report that’s forecast to show U.S. employers added fewer jobs in May, making it harder for the Federal Reserve to tighten monetary policy.

The yen rose against all 16 of its most-traded peers as Asian stocks declined after a measure of Chinese corporate activity fell in May. The dollar fell amid speculation that further signs of economic slowdown will prompt the Federal Reserve to expand quantitative easing, debasing the currency. The euro is headed for its longest stretch of weekly gains versus the dollar since March as international officials prepare a second bailout for Greece.

“It’s all about risk dynamics and the prospect of a deteriorating global economic environment,” said Jeremy Stretch, London-based head of currency strategy at Canadian Imperial Bank of Commerce. “The major focus is obviously on the non-farm payroll report, where markets have downgraded expectations. We look for risk-off sentiment to predominate into the close, with the dollar losing out to the yen.”

The dollar fell 0.3 percent to 80.66 yen as of 7:42 a.m. in New York from 80.90 in New York yesterday. It touched 80.53, the weakest since May 13. It traded at $1.4492 per euro from $1.4491 yesterday, down 1.2 percent in the week. The U.S. currency earlier reached $1.4518 per euro, the weakest since May 6. The euro fell 0.3 percent to 116.90 yen.

U.S. Outlook

The Dollar Index, which tracks the greenback against the currencies of six trading partners, fell as low as 74.21, the least since May 6, before trading little changed at 74.32.

U.S. job growth slowed to 165,000 new employees in May from 244,000 in April, according to estimates in a Bloomberg News survey before Labor Department figures due today.

“Depending on economic data, there may be discussions about additional easing in the U.S., which will trigger a decline in the dollar,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin-trading services. “A drop in stocks or commodities would be a catalyst for the yen to be bought.”

China’s non-manufacturing purchasing managers’ index fell to 61.9 in May from the previously reported 62.5 in April, according to a statement today by the Beijing-based National Bureau of Statistics and the Federation of Logistics and Purchasing. A reading above 50 indicates an expansion.

The MSCI Asia Pacific Index declined 0.5 percent after rising as much as 0.4 percent.

Pound Slides

The dollar has declined 0.2 percent in the past week, according to Bloomberg Correlation-Weighted Currency Indexes, which track 10 developed-nation currencies. The euro has advanced 1.2 percent and the yen is little changed.

Factory-gate prices in the euro region rose 0.9 percent in April from the previous month, the European Union’s statistics office in Luxembourg is forecast to say on June 6, according to a Bloomberg News survey.

The European Central Bank raised its key interest rate by 25 basis points to 1.25 percent in April, even as Portugal joined Greece and Ireland in requesting financial aid from the EU and the International Monetary Fund. The Federal Reserve and Bank of Japan are holding rates near zero.

ECB President Jean-Claude Trichet said June 1 that the ECB “will continue to deliver price stability.”

The pound reached a one-month low against the euro as a report showed U.K. services growth slowed for a second month in May. A gauge based on a survey of companies fell to 53.8 from 54.3 the previous month, Markit Economics Ltd. and the Chartered Institute of Purchasing and Supply said today. The median estimate of economists polled by Bloomberg News was for a decline to 54.2.

“We look for renewed underperformance of the pound going forward,” London-based Morgan Stanley analyst Tim Davis wrote in a research note dated yesterday. “The growth outlook remains subdued and the recent economic data flow has disappointed.”

The pound fell 0.3 percent to 88.80 pence per euro after depreciating to 88.98 pence, matching the weakest level on May 6. It declined 0.3 percent to $1.6322.

--Editors: Keith Campbell, Mark McCord

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.

To contact the editor responsible for this story: Matthew Brown in London at mbrown42@bloomberg.net


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