Bloomberg News

Dollar Drops Most Versus Yen in Three Weeks on Payrolls Report

July 08, 2011

July 8 (Bloomberg) -- The dollar fell the most in three weeks versus the yen after the government’s payrolls report showed employers added fewer jobs in June than economists forecast and the unemployment rate increased to 9.2 percent.

The yen and Swiss franc rose against most of their major counterparts as evidence that the U.S. economic recovery is stalling spurred demand for a refuge.

“This number shows that yields in the U.S. are going to remain very low for much longer than the market anticipated, and that is going to weigh on the dollar continuously,” said Boris Schlossberg, director of research at the online currency trader GFT Forex in New York. “The dollar was going to rally against Swiss and yen on a good number, and now those trades are off the table.”

The dollar slid 0.7 percent to 80.71 yen at 8:44 a.m. in New York, from 81.25 yesterday. The greenback depreciated as much as 0.8 percent, the most since June 17. The U.S. currency appreciated 0.4 percent to $1.4308 against the euro, from $1.4364. The euro dropped 1.1 percent to 115.43 yen.

Payrolls expanded by 18,000 in June after a revised increase of 25,000 in the previous month, the Labor Department reported today. The median forecast of 85 economists in a Bloomberg News survey was for 105,000 more jobs. The unemployment rate had been projected to hold at 9.1 percent.

Federal Reserve Chairman Ben S. Bernanke said following the central bank’s June 21-22 meeting that unemployment will come down “very painfully slowly” even after the pace of economic growth picks up starting in the second half of 2011.

Fed on Employment

The central bank predicted the unemployment rate would average 8.6 percent to 8.9 percent in the final three months of 2011, compared with 8.4 percent to 8.7 percent projected in April. The economy will expand 2.7 percent to 2.9 percent this year, down from forecasts ranging from 3.1 percent to 3.3 percent in April, according to the Fed.

Policy makers have kept the target lending rate at a record low zero to 0.25 percent since December 2008 to support the economy. The European Central Bank raised its benchmark rate by a quarter-percentage point to 1.5 percent yesterday. The Reserve Bank of Australia has raised its cash rate target seven times since the financial crisis began to ease.

The 17-nation euro fell earlier against the dollar as a European Union document on bank stress tests deepened concern that the region’s debt crisis may intensify.

EU Stress Tests

Banks that fail this year’s round of EU stress tests may need to present plans for making up their capital shortfall by the end of September, according to the internal EU document obtained by Bloomberg News.

Firms may be given a further three months to implement these plans and raise the additional capital they need, according to the document.

IntercontinentalExchange Inc.’s Dollar Index, which measures the greenback against the currencies of six major U.S. trading partners, gained 0.1 percent to 75.031, from 74.957.

The gauge of the U.S. currency fell 0.7 percent on June 3, when the Labor Department reported that employers added fewer jobs than economists forecast. The index increased 0.9 percent on May 6, when more positions were added than projected.

A report last week showed strength in manufacturing. The Institute for Supply Management’s index rose to 55.3 in June from 53.5 in the previous month, the Tempe, Arizona, group reported July 1. Readings above 50 indicate growth.

The dollar is the second-worst performer this year among 10 developed-nation currencies, according to Bloomberg Correlation-Weighted Currency Indexes, having fallen 5.2 percent. The biggest loser is the yen, down 5.6 percent.

--With assistance from Jim Brunsden in Brussels. Editors: Dennis Fitzgerald, Paul Cox

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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