The dollar strengthened for a second day against the euro before a U.S. report that analysts said will show companies added enough jobs to lower the unemployment rate, boosting growth prospects for the world’s biggest economy.
The Dollar Index advanced to a five-week high amid bets an improving U.S. economy will prompt the Federal Reserve to reduce monetary stimulus that tends to weaken a currency. The pound dropped to a three-month low against the dollar on speculation the Bank of England is ready to do more to aid the U.K. recovery. Norway’s krone fell after a government report showed manufacturing production dropped more than economists forecast.
“A strong number will fuel expectations for a tapering sooner rather than later and may also have implications for what the market expects in terms of the magnitude,” Henrik Gullberg, a currency strategist at Deutsche Bank AG in London, said about the U.S. payrolls data. “The market to a significant extent is already positioned for a strong dollar.”
The dollar gained 0.3 percent to $1.2879 per euro at 7:03 a.m. New York time after appreciating 0.7 percent yesterday. The U.S. currency was little changed at 99.99 yen after rising to 100.86 yen on July 3, the strongest since May 31. The euro declined 0.3 percent to 128.79 yen.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, gained 0.9 percent to 83.986 after rising to 84.04, the highest since May 29.
The Labor Department will say U.S. companies added 165,000 workers last month after hiring 175,000 in May, according to the median estimate of economists surveyed by Bloomberg News before the Labor Department report at 8:30 a.m. in Washington. The jobless rate fell to 7.5 percent from 7.6 percent, a separate survey showed.
The Dollar Index has gained 4.2 percent since June 18 the day before Fed Chairman Ben S. Bernanke said policy makers may start to reduce stimulus this year if the recovery matches the central bank’s target. The Fed purchases $85 billion of Treasury and mortgage bonds each month to put downward pressure on borrowing costs.
The dollar strengthened 7.2 percent this year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has tumbled 8.5 percent and the euro advanced 4.4 percent.
The pound weakened for a second day versus the euro after the Bank of England, led by newly installed Governor Mark Carney, signaled yesterday that policy makers will keep rates at a record low for longer than investors had anticipated.
“Carney caught the market unawares, he was attempting to ensure that market expectations remain more focused on the U.K. economy than on the U.S.,” said Jane Foley, a senior currency strategist at Rabobank International in London. “He wanted to draw attention to the fact that the recovery is very nascent, very fragile. That leaves the pound weaker.”
The pound fell 0.6 percent to $1.4979 after dropping to $1.4964 the lowest level since March 14. The U.K. currency declined 0.4 percent to 85.99 pence per euro after depreciating to 86.33 yesterday, the weakest since April 17.
The krone fell for the first time in three days against the dollar after Statistics Norway said the nation’s manufacturing production declined 2.1 percent in May from the previous month, when it gained a revised 2.9 percent.
The Norwegian currency declined 1 percent to 6.1713 against the dollar and slipped 0.8 percent to 7.9516 per euro.