BL: Dollar Trades Near Five-Week High Versus Euro Before Job Report
By Stanley White
May 2 (Bloomberg) -- The dollar traded near a five-week high against the euro before a government report forecast to show U.S. companies lost workers at a slower pace in April.
The currency headed for its first back-to-back weekly gain this year against the euro on speculation the Federal Reserve will stop cutting borrowing costs. The central bank on April 30 cut its target rate for overnight lending by a quarter- percentage point to 2 percent and said the ``substantial'' amount of easing since September would foster economic growth.
``Sentiment for the dollar is improving as worries about the economy recede,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``The Fed has hinted that it's ready for a pause. Unless the jobs data miss expectations significantly, the dollar is an easy buy.''
The dollar traded at $1.5474 per euro at 9:50 a.m. in Tokyo from $1.5474 yesterday, when it touched $1.5431, the highest since March 25. The U.S. currency traded little changed at 104.58 yen, following an increase of 0.5 percent yesterday. The pound bought $1.9780 from $1.9748. The euro was at 161.83 yen, following a drop of 0.5 percent. The dollar may rise to $1.5430 per euro today, Ishikawa forecast.
The dollar was on course for a 1 percent gain against the euro this week. The greenback, as the U.S. currency is known, headed for a weekly advance of 0.4 percent against the pound.
Since declining to the all-time low of $1.6018 per euro on April 22, the dollar has increased 3.5 percent on speculation the Fed will not add to this week's rate reduction and economic growth in Europe will start to slow.
Dollar Index
The U.S. Dollar Index, which measures the currency against six major counterparts, was at 73.207 after touching 73.393 yesterday, the highest level since March 11. The index fell to 70.698 on March 17, the lowest since its 1973 inception.
U.S. payrolls probably fell by 75,000 in April, less than the 80,000 decline in the previous month, according to the median forecast of 82 economists surveyed by Bloomberg News. The Labor Department is scheduled to release the report at 8:30 a.m. in Washington.
The dollar rose yesterday after a report from the Institute for Supply Management showed U.S. manufacturing contracted less than forecast in April.
Futures on the Chicago Board of Trade showed an 80 percent chance policy makers will keep the fed funds target unchanged when they next meet June 25. The balance of bets is for a cut of a quarter-percentage point.
Currency Support
``Unless tonight's key U.S. payrolls report shows a shockingly large fall in jobs, or jump in the unemployment rate, traders will continue to price an end to Fed rate cuts, supporting the dollar,'' John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney, wrote in a research note today.
The yield advantage of two-year German bunds over comparable-maturity U.S. Treasuries has narrowed to 1.40 percentage points from 1.85 percentage points at the end of March, making dollar-denominated assets more attractive.
The greenback headed for a weekly advance against 13 of the 16 most-active currencies as declines in commodities prices show investors have more confidence in the Fed, said Jim McCormick, head of global foreign exchange strategy in London at Lehman Brothers Holdings Inc.
Commodity Prices
The UBS Bloomberg Constant Maturity Commodity Index fell 2 percent to 1,471.1 yesterday, the biggest drop since March 19. Gold slid to a four-month low yesterday after reaching a record high on March 17. Crude oil fell 24 cents to $112.28 a barrel. It touched a record of $119.93 on April 28.
The dollar-yen's correlation with the Constant Maturity Commodity Index over the past year is negative 0.9, according to Bloomberg calculations. A reading of negative 1 means two variables move in the opposite direction.
``A rise in commodities and a fall in the dollar was a signal that the market was losing faith in the central bank,'' McCormick said in an interview with Bloomberg Radio. ``The fact that you're now starting to see commodities come off and the dollar up shows the central bank has moved some way back to gaining sentiment in financial markets.''
Bank of England
The pound headed for a third weekly gain against the euro, the longest rally since May 2006, as the Bank of England said in its twice-yearly financial stability report that ``risk appetite will return gradually'' in the coming months. Sterling traded at 78.23 pence per euro, after increasing yesterday as much as 0.8 percent to 78.02 pence, the highest since March 26. Sterling rose 0.6 percent against the common European currency this week.
``The pound's strength after the BOE report is manifesting itself in the sell-off of the euro against the pound,'' said Adam Cole, head of currency strategy at Royal Bank of Canada in London. ``This is dragging the euro down against the dollar.''
The U.S. currency has lost 10 percent against the euro since the Fed started to lower its target rate for overnight lending from 5.25 percent in September.
The ECB will cut its 4 percent main refinancing rate to 3.75 percent by the end of September and 3.50 percent by year- end, according to a survey of economists surveyed by Bloomberg.
``We are seeing selling pressure on the euro across the board,'' said John McCarthy, director of currency trading at ING Financial Markets LLC in New York. ``The focus is shifting to Europe, with the belief that the worst is over here while Europe is slowing down.''
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
Last Updated: May 1, 2008 21:23 EDT
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