Bloomberg News

Dollar Falls as Jobless Rate May Deter Rate Rise; Kiwi Advances

July 06, 2011

July 6 (Bloomberg) -- The dollar weakened against most of its major counterparts on speculation the U.S. jobless rate will remain elevated, delaying any tightening in monetary policy by the Federal Reserve.

The greenback fell for the seventh time in eight days against the euro as economists said figures this week will show U.S. companies added 100,000 workers in June, less than the 200,000 cited by some analysts as the minimum needed to bring down unemployment. New Zealand’s currency strengthened as gains in Asian stocks boosted demand for higher-yielding assets. The Philippine peso climbed to a nine-week high after Fitch Ratings forecast the economy will expand this year and next.

“We’re likely to see the dollar weak until we get the Fed indicating it needs to tighten,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s biggest lender. “The fundamentals of interest-rate differentials remain crucial to currency directions.”

The dollar fell to $1.4454 per euro as of 6:17 a.m. in London from $1.4429 in New York yesterday. The greenback dropped to 80.87 yen from 81.07 yen. The 17-nation euro was at 116.88 yen from 116.97.

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, declined 0.2 percent to 74.521.

Swaps traders are betting the Fed will raise its target rate by 22 basis points over the next 12 months, down from this year’s high of 54 basis points in April, a Credit Suisse AG index showed. Another index forecasts 83 basis points of tightening by the European Central Bank for the same period.

U.S. Employment

U.S. employers hired 100,000 workers last month, after adding 54,000 in May, according to economists surveyed by Bloomberg News before the Labor Department report July 8. The jobless rate held at 9.1 percent, the analysts predicted.

Payroll increases of around 200,000 a month are needed for a sustained decline in the unemployment rate, according to Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida.

Demand for the euro was limited before Greek bondholders meet with officials in Paris today to discuss their role in a second rescue for the debt-stricken nation.

European Union leaders are aiming for investors to voluntarily roll over 30 billion euros ($43 billion) of Greek bonds to support official loans by the EU and the International Monetary Fund. Talks between lenders and euro-area officials started last week in Rome under the auspices of the Institute of International Finance, a banking-lobby group.

IIF Managing Director Charles Dallara will chair today’s meeting in Paris, the group said in an e-mailed statement.

Euro Uncertainty

“So many stakeholders are involved in Europe’s debt crisis, such as an international entity, a central bank, private financial firms, rating companies and policy makers,” said Daisaku Ueno, president of Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest online currency broker. “We don’t know who will say what, or when. The euro can’t be on an uptrend.”

Moody’s Investors Service yesterday cut Portugal’s long- term government bond ratings to Ba2, two levels below investment grade. The reductions stem partly from “the growing risk that Portugal will require a second round of official financing before it can return to the private market,” Moody’s said in a statement.

The ECB will probably increase its main refinancing rate to 1.50 percent tomorrow from 1.25 percent, according to all 55 economists in a Bloomberg survey.

Kiwi, Peso

New Zealand’s dollar rose to 82.88 U.S. cents from 82.51 yesterday, when it fell as low as 82.34, the least since June 29. The currency gained 0.2 percent to 67.02 yen.

The MSCI Asia Pacific Index of regional shares gained 0.3 percent today. The Thomson Reuters/Jefferies CRB Index of raw materials rose 1.5 percent yesterday.

The Philippine peso climbed to its strongest level since May 3 after Fitch forecast as much as 6 percent growth in 2011 and 2012. The rating agency said today its outlook on Philippine banks is stable, “underpinned by an improving domestic economy and relatively low asset quality risk.” Growth was 4.9 percent in the first quarter, the weakest pace since the final three months of 2009.

“The Fitch comments are validating the improved macro fundamental story that’s been making the rounds the past few weeks,” said Radhika Rao, a Singapore-based economist at Forecast Pte.

The peso strengthened for a seventh day against the greenback and gained 0.5 percent to 42.835 per dollar, according to Tullett Prebon Plc.

--With assistance from Catarina Saraiva in New York, Candice Zachariahs in Sydney, Ron Harui in Singapore and Karl Lester M. Yap in Manila. Editor: Rocky Swift

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.


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