Bloomberg News

Dollar Drops Against Euro on Bets U.S. Payrolls Rose Last Month

February 03, 2012

Feb. 3 (Bloomberg) -- The dollar weakened against the euro before a report economists said will show U.S. employers increased payrolls last month, damping demand for the perceived safety of the currency.

The euro’s advance trimmed its first weekly decline in three, after Greece and its creditors struggled to reach an agreement on a deal to reduce the nation’s debt. Japan’s currency traded within one yen of a postwar high versus the dollar amid speculation the country will act to weaken it. Canada’s dollar fell against the greenback after a jobs report showed the unemployment rate unexpectedly increased.

U.S. “payrolls will be the big event of the day,” said Jane Foley, a senior currency strategist at Rabobank International in London. “If we get stronger data it would improve risk appetite, which is dollar negative, but at the same time it would push back expectations of further quantitative easing, which is dollar positive.”

The dollar depreciated 0.1 percent against the euro to $1.3163 at 7:35 a.m. New York time, paring its gain for the week to 0.4 percent. The common currency was 0.2 percent stronger at 100.40 yen, trimming its weekly drop to 1 percent.

The yen traded at 76.27 per dollar. It strengthened to 76.03 two days ago, approaching the post-World War II record of 75.35 set on Oct. 31.

Payrolls Boost

U.S. employers boosted payrolls by 140,000 in January after an increase of 200,000 a month earlier, according to the median estimate of 89 economists surveyed by Bloomberg News. Unemployment probably stayed at 8.5 percent last month from December, a separate survey showed.

“An increase of 100,000 to 200,000 should be beneficial for risk and see the dollar underperform,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, fell almost 0.1 percent to 78.934.

Private payrolls probably rose by 160,000 in January, after a 212,000 gain the prior month, a separate survey showed. That would be the biggest back-to-back increase since March-April.

The euro headed for a weekly decline against all its major peers with Greece yet to conclude a deal on a second international bailout. The rescue plan, which European officials and creditors say may be wrapped up in coming days, includes a loss of more than 70 percent for debt investors in a voluntary exchange and loans likely to exceed the 130 billion euros now on the table.

Euro Forecasts

Finance ministers from the four euro-area countries with AAA grades from all three major ratings companies -- Germany, Finland, Luxembourg and the Netherlands -- will meet in Berlin today, a German Finance Ministry spokesman said yesterday. The ministers won’t brief reporters after the meeting, according to the spokesman, speaking on condition of anonymity.

“The continuing uncertainty in Greece has contributed to a slightly weaker euro this week,” said Michael Derks, chief strategist at broker FXPro Financial Services Ltd. in London.

The euro was poised for a weekly drop as the implied volatility of three-month options of Group of Seven currencies rose for the first week in five. The measure was at 10.28 percent from 10.22 percent on Jan. 27, according to the JPMorgan G7 Volatility Index. An increase makes investments in currencies with higher lending rates less attractive because the risk in such trades is that market moves will erase profits.

Morgan Stanley cut its fourth-quarter 2012 forecast for the euro to $1.15 from a previous projection of $1.20, according to a research note published yesterday, saying efforts to control government budgets will push the region into a recession.

Intervention Risk

Japan’s Finance Minister Jun Azumi said today he will take decisive steps against one-sided moves in the yen if needed. The currency’s level doesn’t reflect economic fundamentals, and falling U.S. interest rates are increasing speculative yen buying, he told reporters in Tokyo. Japan sold the yen on Oct. 31 on concern its advance to a record would hurt exporters.

“Jawboning by the Japanese authorities has increased significantly over the past week,” said Lee Hardman, a currency strategist in London at Bank of Tokyo-Mitsubishi UFJ Ltd. “The near-term risk of direct intervention is now high.”

The yen has gained 5.9 percent over the past six months, the second-best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 6.4 percent and the euro dropped 2.7 percent.

Canadian Dollar

The Canadian currency depreciated 0.3 percent to C$1.0019 per U.S. dollar. One Canadian dollar buys 99.81 U.S. cents.

The jobless rate rose to 7.6 percent from 7.5 percent as employment increased by 2,300 last month, Statistics Canada said today. Economists surveyed by Bloomberg News had forecast unemployment to stay at 7.5 percent and 22,000 jobs to be added.

China’s yuan snapped a four-day gain as expansion in its non-manufacturing industries slowed. A purchasing managers’ index declined to 52.9 last month from 56 in December, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in a statement today in Beijing. A reading above 50 indicates growth.

The yuan was little changed from yesterday at 6.3029 per dollar, according to the China Foreign Exchange Trade System.

--With reporting by Masaki Kondo in Singapore and Mariko Ishikawa in Tokyo. Editors: Daniel Tilles, Paul Dobson

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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