Dollar Reaches Four-Month Low Against Euro Before U.S. Jobs Data Release

The dollar fell to its weakest level in four months against the euro as stock markets rose before a report that may show U.S. employers added the most jobs since May, curbing demand for the currency as a haven.

The euro headed for a third straight weekly increase against the greenback, the longest run of gains since October, after European Central Bank President Jean-Claude Trichet said yesterday the ECB may increase interest rates at its next meeting. Sterling declined against the dollar after house prices fell in February, fueling concern that the economic recovery won’t be sustained.

“There’s already decent risk appetite out there and a good number would propel that further,” said Jane Foley, a senior currency strategist at Rabobank Group in London. As the jobs data is unlikely to “significantly alter expectations” on U.S. rates, it “won’t be sufficient to turn the trend around for the dollar,” she said.

The dollar traded at $1.3968 per euro at 8:02 a.m. in New York, compared with $1.3969 yesterday. It earlier today depreciated to $1.3978, the weakest level since Nov. 8. The dollar rose 0.4 percent to 82.73 yen, from 82.44. The euro bought 115.58 yen, from 115.16 yesterday and 112.35 a week ago.

U.S. nonfarm payrolls increased by 196,000 in February, according to the median estimate of economists surveyed by Bloomberg News before today’s Labor Department report. U.S. initial jobless claims unexpectedly fell last week to the lowest level in more than two years and service industries expanded more than forecast last month, data published yesterday showed.

Stocks Gain

The MSCI Asia Pacific Index gained 0.9 percent, leaving it 1.7 percent higher for the week, while the Stoxx Europe 600 Index added 0.4 percent. U.S. stock-index futures rose.

The euro has jumped 1.3 percent since Feb. 25 against a basket of developed nations’ currencies as investors increased wagers the ECB would raise it key rate, which is already 0.75 percentage point higher than the upper end of the Federal Reserve target range.

The implied yield on the three-month Euribor contract expiring in December rose one basis point to 2.175 percent, after climbing 23 basis points yesterday. There’s a 39 percent chance the Fed will raise U.S. interest rates at the December meeting, according to Fed fund futures traded on the CME Group Inc. Index. The U.S. benchmark rate has been at a range of zero to 0.25 percent since December 2008. The ECB’s main rate is at a record low of 1 percent.

‘Euro to Strengthen’

An “increase of interest rates in the next meeting is possible,” Trichet said yesterday. Trichet and board member Lorenzo Bini Smaghi are among the ECB policy makers scheduled to speak in Paris and Cape Town today.

“It’s absolutely clear that the ECB will raise rates in April, with some now expecting 75 basis points worth of hikes this year,” said Yuji Saito, director of the foreign-exchange department at Credit Agricole Corporate & Investment Bank in Tokyo. “The euro will likely strengthen further, initially targeting $1.4080,” the Nov. 8 high, he said.

Germany’s two-year government notes yielded 99 basis points more than similar maturity Treasuries today, after the spread widened yesterday to the most since December 2008, making euro- denominated debt more attractive.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, including the euro and yen, has slipped 1 percent this week to 76.518, after yesterday touching the weakest since Nov. 8. The gauge is weighted 57.6 percent to euro movements.

U.K. House Prices

The pound was little changed at $1.6268, bound for a 0.9 percent advance this week. It was also little changed against the euro, at 85.84 pence.

U.K. house prices fell 0.9 percent from January, when they rose 0.8 percent, the mortgage unit of Lloyds Banking Group Plc said in a statement in London today. Britain’s economy shrank 0.6 percent in the fourth quarter.

Australia’s dollar fell to the lowest in more than five weeks against the euro on speculation the Reserve Bank of Australia will lag behind its European counterpart in raising interest rates.

Swaps traders are betting the RBA will raise its benchmark by 35 basis points over the next 12 months, according to a Credit Suisse Group AG index. A basis point is 0.01 percentage point.

The so-called Aussie was at 72.51 euro cents, after depreciating to 72.67 earlier, the weakest since Jan. 28.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

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

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