The dollar rose from an eight-month low against the yen and gained for the first time in three days versus the euro after reports showed the U.S. added more workers than forecast and service industries grew faster in July.
The yen had rallied on speculation growth in the world’s biggest economy is slowing and the Federal Reserve may signal additional stimulus measures at next week’s policy meeting. The greenback also strengthened versus the Swiss franc, Norwegian krone and British pound.
“You’re seeing dollar recovery with these data releases,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. “It might not be as bad people are saying.”
The dollar rose 0.6 percent to 86.27 yen at 5 p.m. in New York from 85.79 yesterday. The greenback strengthened 0.5 percent to $1.3161 per euro from $1.3231. The yen traded at 113.54 per euro, compared with 113.50 yesterday.
Japan’s currency has appreciated versus all of its major peers this year as speculation the global recovery will falter stoked demand for the safest assets. It climbed to 85.33 earlier, the highest since Nov. 27, when the yen touched levels last seen in 1995.
Service industries expanded in July at a faster pace than forecast. The Institute for Supply Management’s index of non-manufacturing businesses, which covers about 90 percent of the economy, rose to 54.3 from 53.8 in June. Readings above 50 signal expansion. Economists forecast the index would fall to 53, according to the median of 77 projections in a Bloomberg News survey.
Labor Market Indicators
Another report showed companies added more workers in July than forecast. Payrolls excluding government agencies climbed by 42,000 workers last month after a 19,000 increase the prior month, according to figures from ADP Employer Services. Economists surveyed by Bloomberg News had forecast a gain of 30,000, according to the median estimate.
“A lot of indicators of the labor market have held up remarkably well, even though other indicators of the broader economy have been softening,” said James Shugg, senior economist at Westpack Banking Corp. in London. “Jobs tend to lag the rest of the economy. The Fed will acknowledge the economy is slowing, but I don’t think they’ll do anything about it.”
Speculation that the Fed will resume bond buying as one way to provide added stimulus has increased since Chairman Ben S. Bernanke said July 21 that the outlook “remains unusually uncertain.” Policy makers next meet on Aug. 10.
‘On The Sidelines’
A report tomorrow may show initial jobless claims fell to 455,000 last week from 457,000 in the prior period which ended July 24, according to a Bloomberg survey of economists. A report due Aug. 6 may show that U.S. nonfarm payrolls declined by 65,000 from 125,000 in the prior period.
“You’re coming so close to a very important number you tend to stay a little bit on the sidelines here,” said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. “It looks a little bit more positive this month than it did last month. It didn’t look that bad today so we’re just hoping that we’ll get a good number.”
Japanese Finance Minister Yoshihiko Noda told parliament yesterday that currency rates should be determined by financial markets. He declined to comment on whether Japan will consider intervening to stem the yen’s appreciation.
“The momentum is clearly to the downside in dollar-yen, so any intervention at this point is very unlikely,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “The flip side of that is Japanese authorities love to surprise the market and most market participants are saying what I’m saying, so the potential for a surprise is fairly high.”
The Japanese currency typically strengthens in times of financial turmoil as Japan’s trade surplus makes the currency attractive as it means the nation does not have to rely on overseas lenders. The U.S. payrolls report this week may boost demand for the currency as a refuge, according to Bank of America Merrill Lynch.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, rose 0.5 percent to 80.962, after falling yesterday to the lowest level since April.
Sterling fell, snapping a nine-day surge against the dollar, after a report showed U.K. services growth slowed to the lowest in 13 months in July and technical indicators suggested the currency appreciated too quickly. The relative strength index on the pound against the dollar was at 75.67 today, its fourth day above 70, a level that technical analysts say indicates a currency is overbought.