The dollar slumped to a 15-year low against the yen after a private report showed U.S. companies unexpectedly cut jobs last month, fueling speculation the Federal Reserve will buy U.S. assets to spur a slowing economy.
The euro touched an eight-month high against the greenback before a Labor Department report in two days that may show lower-than-forecast job growth. The Dollar Index fell to levels last seen in January as the U.S. central bank is forecast to join the Bank of Japan in increasing purchases of government debt to spur growth. Treasury Secretary Timothy F. Geithner said a “damaging dynamic” of large economies keeping their currencies undervalued can cause inflation and asset bubbles.
“Since the Fed, it has been a one-way street for the dollar and the euro and yen are the most liquid, easiest avenue to trade dollar weakness into,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “The dollar looks fragile with quantitative easing. The euro and the yen are doing the heavy lifting for dollar weakness.”
The dollar declined 0.4 percent to 82.93 yen at 5:31 p.m. in New York, from 83.22 yesterday. It touched 82.77, the weakest level since May 1995 and less than the low of 82.88 on Sept. 15, when Japan sold yen to weaken its value to protect an export-led recovery.
The dollar depreciated 0.7 percent to $1.3930 per euro, the weakest since Feb. 3, from $1.3839 yesterday. The yen declined 0.3 percent to 115.53 per euro, from 115.16.
The seven-day relative-strength index for the euro against the dollar increased to 79.7, staying above 70 for 13 consecutive days. A reading above 70 indicates the currency may fall. This is the longest streak at this level for the euro since 18 days in March 2008.
The yen’s seven-day relative strength rose for the second day to 76.4.
The Swiss franc strengthened to a record against the greenback. The franc has gained 20 percent since June 1 as investors avoid the volatility in the dollar.
The Swiss currency gained as much as 0.7 percent to 95.99 centimes per dollar.
The Brazilian real was the weakest major currency against the dollar as Brazil’s Treasury won authorization to step up dollar purchase for debt payments as the government increases efforts to temper the real’s rally.
Finance Minister Guido Mantega this week doubled a tax on foreign purchases of fixed-income securities in a bid to temper currency gains that pushed the real to two-year high yesterday.
The real weakened 0.9 percent to 1.6788 per dollar from 1.6632 yesterday.
Companies in the U.S. unexpectedly cut 39,000 jobs in September, according to figures from ADP Employment. The median of a Bloomberg News survey of 37 economists projected 20,000 added jobs. A Labor Department report Oct. 8 may show the jobless rate probably rose in September for a second month as the year-old U.S. recovery failed to generate enough jobs to keep up with a growing labor force, according to another survey of 80 economists.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, reached 77.301 today, the lowest since Jan. 19.
“The negative dollar, this has been the big market driver and will continue to be,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. He said the Japanese will not intervene in the currency market before the G7 meeting scheduled for Oct. 8 in Washington.
Chinese Premier Wen Jiabao said a rapid increase of the yuan would hobble China’s economy. Wen said in Brussels today that China will stick to its policy of gradually increasing the currency’s flexibility and faulted European leaders for teaming with the U.S. to pressure the Chinese government.
China’s central bank set its yuan reference rate at 6.6805, 0.15 percent lower than yesterday and the strongest level against the dollar since the currency was first pegged in 1993.
China and its neighbors in the region will need to adopt “appropriate appreciation” of their currencies to bolster incomes and purchasing power, the International Monetary Fund said. European Commission President Jose Barroso joined the call to China today saying the country needs an “orderly and broad-based appreciation” of the currency.
“Wars is not a great way to think about this, I think the word war implies that there is something unusual going on,” said Daniel Katzive, a currency strategist at Credit Suisse Group AG, in an interview with Margaret Brennan on Bloomberg Television’s “InBusiness.” “We’ve had a few instances in weak dollar in the past couple of years. The central banks who are intervening are those who have been intervening over the past decade.”
The euro may fall against the dollar if a deal is reached at the IMF’s meeting in Washington this weekend to allow Asian currencies to rise against the greenback, according to BNP Paribas SA.
“Should there be a deal in Washington suggesting Asian currencies to appreciate at a faster pace up to their fair values, dollar weakness would be re-channelled away from European currencies,” strategists led by Hans-Guenter Redeker in London, wrote in a research report today.
“More and more countries face stronger pressure to lean against the market forces pushing up the value of their currencies,” Treasury’s Geithner said in a speech today at the Brookings Institution in Washington.
Geithner’s comments echoed calls by the IMF for greater currency flexibility as part of an effort to encourage more balanced global growth, with emerging nations relying less on exports and developed countries curbing their appetite for imported goods.
“It’s going to be difficult to get a group as diverse as the G20 to come out with some concrete guidance,” said Credit Suisse’s Katzive. “It will more or less be every man for himself.”
Canadian Finance Minister Jim Flaherty told reporters in Ottawa countries are concerned that measures being taken around the globe to weaken currencies are distorting markets and trade.
“We don’t want these kind of distortions in currency values or distortions in trading relationships,” said Flaherty disadvantaged by certain interventions that are made by other countries and by inflexibility by certain currencies,” said Flaherty, who will chair a meeting of Group of Seven finance ministers in Washington on Friday.