Dollar Trades Near Eight-Month Low Against Yen Before U.S. Payrolls Report

The dollar traded near a three-month low against the euro on speculation a report today will show U.S. companies cut workers for a second month, adding to signs the nation’s economic recovery is waning.

The greenback headed for a weekly decline against 15 of its 16 most-traded counterparts after Nobel Prize-winning economist Joseph E. Stiglitz said the nation’s recovery is “anemic” and called for a second round of “better-designed” stimulus. The yen was poised for a weekly loss versus the euro before a German report forecast to show industrial production in Europe’s largest economy expanded for a fourth month.

“There’s certainly a lot of negativity priced into the U.S. dollar lately based on the outlook for the U.S. economy,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “The fall in U.S. yields can to some extent be pinned on the expectation that the Fed is prepared to do more quantitative easing.”

The dollar traded at $1.3186 per euro as of 12:08 p.m. in Tokyo from $1.3189 in New York yesterday, after falling to $1.3262 on Aug. 3, the weakest since May 3. It was at 85.93 yen from 85.82 yen, after dropping to 85.33 on Aug. 4, the lowest since Nov. 27. The euro bought 113.28 yen from 113.20 yen.

The U.S. currency was set for a second weekly drop versus the euro before the Labor Department’s payrolls report that economists said will show employers cut 65,000 jobs in July, after trimming 125,000 positions the previous month.

U.S. initial jobless claims rose 19,000 to 479,000 in the week ended July 31, the Labor Department said yesterday, adding to speculation the Fed will discuss stimulus measures at its policy meeting next week.

‘Weak’ Recovery

“The recovery is so weak that it is not strong enough to generate new jobs for the new entrants in the labor force, let alone to find jobs for the 15 million Americans who would like a job and can’t get one,” Stiglitz told Bloomberg Television in an interview in Sydney yesterday.

U.S. two-year Treasuries yield 0.54 percent, within three basis points of the record low of 0.5143 percent set Aug. 3.

The yen extended this week’s decline against the euro as economists said German industrial production rose 0.5 percent in June, after gaining 2.6 percent in May. The Economy Ministry in Berlin releases the report today.

‘Really Well’

“Economies in Europe are doing really well,” said Yoh Nihei, a Tokyo-based trading group manager at Tokai Tokyo Securities Co. “Risk appetite may improve, and the bias for the yen would be to weaken.”

European Central Bank President Jean-Claude Trichet said yesterday the region is recovering faster than forecast and money markets are improving, paving the way for the ECB to phase out liquidity tools used to fight the financial crisis.

“The available data for the third quarter are better than expected,” Trichet said yesterday after the ECB’s Governing Council kept its benchmark at a record low of 1 percent. “The market is functioning a little bit better.”

The yen has climbed 10 percent this year against the 10 developed-world currencies, the best performer in the group, according to Bloomberg Correlation-Weighted Currency Indexes. The euro has dropped 7.8 percent to be the worst, while the dollar has gained 1.1 percent.

Canadian Dollar

The Canadian dollar traded near a three-month high against the greenback before a government report that economists said will show employment rose for a seventh month, backing the case for the central bank to increase interest rates.

Strong economic “fundamentals” support demand for the nation’s assets, Finance Minister Jim Flaherty said yesterday, adding it’s no “surprise” the Canadian dollar, nicknamed the loonie, has become more attractive. The Bank of Canada increased borrowing costs by 25 basis points on June 1 and again on July 20 to the current level of 0.75 percent.

“Flaherty has said that the rise in the loonie ‘makes sense’ and that ‘it would have to go significantly above parity’ before it became a concern,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “The Canadian dollar has the green light to try and test” the April high of C$0.9931, he said.

Canada’s economy added 12,500 jobs in July, after a gain of 93,200 in June, according to a Bloomberg survey before Statistics Canada’s report today.

The Canadian dollar was at C$1.0167 versus the greenback from C$1.0168 yesterday, when it rose to C$1.0108, the highest level since May 4.

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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