Dollar Falls to 8-Month Low Versus Yen, Drops Against Euro After Jobs Data

The dollar dropped to an eight-month low against the yen and fell versus the euro as data showed the U.S. lost more jobs in July than forecast, adding to concern the economy may need additional stimulus.

“The initial reaction is to sell risk,” said Andrew Busch, a global currency strategist at Bank of Montreal in Chicago. The Federal Reserve “is going to be under a lot of pressure to take additional measures,” he said.

The Dollar Index declined for the ninth straight week, the longest losing streak since 2004. The U.S. currency will strengthen as the global economy slips back into recession, according to John Taylor, chairman of FX Concepts LLC, manager of the world’s largest currency hedge fund. Fed policy makers are scheduled to meet next week.

The dollar depreciated 0.4 percent to 85.49 yen at 4:49 p.m. in New York, from 85.82 yesterday, and reached 85.02 yen. That’s the lowest since Nov. 27, when it touched levels last seen in 1995.

The greenback fell 0.7 percent to $1.3283 per euro after touching $1.3334, the weakest since May 3. The dollar lost for a second week versus both the yen and euro, falling 1.1 percent and 1.7 percent, respectively. The shared currency rose 0.3 percent today to 113.56 yen.

Nonfarm payrolls lost 131,000 positions last month, Labor Department data showed today, compared with a drop of 65,000 forecast in a Bloomberg News survey of 84 economists. The economy shed a revised 221,000 jobs in June. Private payrolls that exclude government agencies rose by 71,000, less than forecast, after a gain of 31,000 in June that was smaller than first reported. The jobless rate held steady at 9.5 percent.

Concerns ‘Reignited’

“When we have data like today, the concerns about global growth get reignited,” said Jens Nordvig, a managing director of currency research in New York at Nomura Holdings Inc. “That’s the dynamic you have now.”

Mexico’s peso and Canada’s dollar were the worst performers among major currencies after the payrolls data. Each country has the U.S. as its biggest trading partner. Canada’s economy also unexpectedly shed jobs last month, with the government statistics agency reporting a net loss of 9,300 positions.

The Canadian currency tumbled 1 percent to C$1.0268 to the greenback, while the peso dropped 1 percent to 12.6892 to the dollar.

The difference between short-term lending rates in the U.S. and Europe widened, which may damp demand for U.S. assets and the dollar. The rate that London-based banks say they charge each other for three-month loans in dollars fell for the 18th straight day, while the rate for euro loans rose.

Rate Gap

The London interbank offered rate, or Libor, for dollars declined to 0.411 percent today, the lowest level since May 6, according to the British Bankers’ Association. The rate was 0.418 percent yesterday. Libor for euros for three months rose to 0.834 percent today, the highest in a year, from 0.832 percent yesterday, the BBA said.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six trading partners, fell 0.6 percent to 80.367 and touched 80.085, the lowest level since April 14. The measure also declined on July 2, when the government reported a loss of jobs, while it rose on June 4, when data showed a gain in May of 431,000 positions.

The index slid 1.4 percent for the past five days for a ninth weekly loss, the most since December 2004.

The Standard & Poor’s 500 Index tumbled as much as 1.7 percent before paring losses to a 0.4 percent drop at closing.

Global Slump

The dollar will revive as the global economy slumps again, which could be in “another couple of weeks,” FX Concepts’ Taylor said in a Bloomberg Television interview. Because most international debt is dollar-denominated, when economic conditions weaken and U.S. banks cut back on lending, global banks scramble for the greenback and boost its value, he said.

Labor Department data yesterday showed the number of Americans filing first-time claims for jobless benefits last week unexpectedly increased by 19,000, to 479,000, fueling speculation the Fed will discuss stimulus measures next week.

“This chronically worse jobs data coming out is likely to continue to give the U.S. Fed scope to keep rates near zero for an extended period of time -- that’s why the dollar sold off so rapidly,” said John Doyle, a strategist in Washington at currency-trading firm Tempus Consulting Inc.

Rate Bets

Traders cut bets the Fed will raise its target rate for overnight lending between banks by at least a quarter-percentage point by the August 2011 meeting. Futures on the CME Group Inc. exchange showed a 28 percent chance policy makers will raise the rate by then, compared with a 49 percent probability a week ago.

The central bank, which meets Aug. 10, has kept the benchmark rate at a record low range of zero to 0.25 percent since December 2008. It also used purchases of Treasury, housing-agency and mortgage-backed securities to spur growth in an effort that ended in March. The buys increased the size of its balance sheet to a record $2.35 trillion in May from $900 billion two years earlier.

St. Louis Fed President James Bullard wrote in a paper published last week the central bank should resume purchases of Treasuries if the economy slows and prices fall.

To contact the reporters on this story: Mary Childs in New York at mchilds5@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net

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