Dollar Gains Versus Yen as Jobs Signal Faster Economic Pace; Euro Rallies

The dollar extended its biggest weekly gain versus the yen in more than a year after U.S. employers added more jobs than forecast in March, signaling a faster pace of U.S. economic growth.

Japan’s currency posted its biggest weekly drop since December 2009 against the dollar amid concern the nation’s economy will be hampered by the aftermath of the March 11 earthquake and tsunami. The dollar weakened against the euro after New York Federal Reserve President William Dudley said not to be “overly optimistic about the growth outlook.” Currencies linked to U.S. growth, such as the Mexican peso and Canadian dollar, were the best performers against the dollar.

“Yen weakness is still the biggest story of the week,” said Greg Anderson, a currency strategist at Citigroup Inc. in New York. “We kind of turned around on euro when Dudley spoke and I would attribute the bounce-back 100 percent to that.”

The dollar, extending its longest winning streak since 2005, rose 1.1 percent to 84.06 per yen at 5 p.m. in New York, from 83.13 yesterday. It headed for a weekly gain of 3.3 percent, the most since the week ended Dec. 4, 2009. It touched 84.73, the strongest since Sept. 24.

The U.S. currency weakened 0.6 percent to $1.4237 per euro, from $1.4158, after gaining as much as 0.7 percent. The 17- nation currency added 1.7 percent to 119.66 yen, the highest level since May 10, 2010.

Jobs Report

Nonfarm payrolls rose by 216,000 in March and unemployment fell to a two-year low. Economists in a Bloomberg survey had forecast a gain of 190,000 jobs. The unemployment rate fell to 8.8 percent from 8.9 percent in February.

“Overall it’s slightly better number but not something to get too excited about,” said David Mann, the New York-based head of research in the Americas for Standard Chartered. “It’s important to note the participation rate at 64.2 percent, staying low, which means that ultimately we still have a major challenge long term.

Group of Seven nations sold about $25 billion of yen on March 18 after the surge in the Japanese currency to a record high versus the dollar threatened to hurt the nation’s recovery efforts from the deadly earthquake, Bank of America Corp. strategists estimate.

Dollar Index

The dollar traded above its 200-day moving average against the yen for the first time since June, which may signal further gains. The greenback dropped 5.5 percent against the euro in the first quarter as investors bet the European Central Bank will raise interest rates at the April 7 meeting and the Fed will fully carry out the $600 billion asset buying program through June.

Fed Bank of Philadelphia President Charles Plosser said a stronger rebound in inflation or growth could require the central bank to begin withdrawing record monetary stimulus. He spoke in Harrisburg, Pennsylvania today.

The dollar erased gains against the euro after Fed Bank of New York’s Dudley released the text of remarks in San Juan, Puerto Rico today.

“We must not be overly optimistic about the growth outlook,” Dudley said. “A stronger recovery with more rapid progress toward our dual mandate objectives is what we have been seeking. This is welcome and not a reason to reverse course.”

Central Banking

The Fed has kept the U.S. benchmark at zero to 0.25 percent since December 2008 and there is a 37.1 percent chance the U.S. central bank will raise rates in December, compared with a 35 percent chance yesterday, according to CME Group Inc. exchange futures.

The ECB has kept its benchmark rate at 1 percent since May 2009 and the implied yield on the three-month Euribor contract expiring in December rose three basis points to 2.125 percent today.

The Swiss franc extended a decline after the SVME Purchasing Managers’ Index fell to 59.3 for March from 63.5 in February when adjusted for seasonal swings, according to Zurich- based Credit Suisse Group AG. That’s the lowest since February 2010.

The franc depreciated 0.5 percent versus the dollar to 92.38 centimes and 1.1 percent to 1.3153 per euro.

Canada Trend

Canada’s dollar reached the strongest level in more than three years against the U.S. dollar, on signs of sustained growth in its biggest trading partner.

Canada’s currency, appreciated 0.8 percent to 96.32 cents, from 97.06 cents yesterday. It touched 96.26 cents, the strongest level since November 2007.

Mexico’s peso rose as much as 0.7 percent to 11.8276 per U.S. dollar, the strongest since October 2008, from 11.9048 yesterday. The currency has gained 1.3 percent this week.

The yen has declined 7 percent during the past three months, according to according to Bloomberg Correlation Weighted Indexes, which tracks nine-developed market currencies. The dollar declined 3.2 percent during this period, while the euro gained 3.7 percent.

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net

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

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