Dollar Drops to 3-Week Low on U.S. Growth Concern; Aussie Jumps

The dollar fell to a three-week low against the euro before reports likely to show U.S. companies hired fewer workers and manufacturing cooled.

The U.S. currency declined against 13 of its 16 most-traded peers before the private ADP Employers Services report is released today, followed by Labor Department figures on June 3. Australia’s dollar strengthened against all its major counterparts after a government report showed the economy shrank last quarter by less than some analysts forecast. The euro erased its advance against the dollar, before rebounding, after German newspaper Frankfurter Allgemeine Zeitung said the International Monetary Fund may not pay out its fifth tranche of aid to Greece in June.

“A weak employment report on the payrolls front will escalate concerns about the U.S. economic outlook and could cause the U.S. dollar to remain under pressure,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “The payrolls numbers on Friday will be quite crucial and today’s ADP report will give us a clue to that.”

The dollar weakened 0.2 percent to $1.4425 per euro as of 8:02 a.m. in London from $1.4396 in New York yesterday and earlier touched $1.4444, the weakest since May 9. It declined 0.1 percent to 81.43 yen. The euro was little changed at 117.43 yen after yesterday reaching 117.80, the highest since May 5.

U.S. Unemployment

IntercontinentalExchange Inc.’s Dollar Index, which measures the greenback against the currencies of six trading partners, fell 0.2 percent to 74.49 after declining to as low as 74.402, the least since May 11.

Companies in the U.S. added 175,000 workers in May compared with 179,000 the prior month, economists in a Bloomberg News survey forecast before the ADP report. The Labor Department data on June 3 will show a 180,000 gain in payrolls compared with April’s 244,000 increase, according to the median forecast in a separate survey.

The Institute for Supply Management’s factory index, due today in the U.S., probably fell to 57.1 last month, the lowest since October, according to the survey median. Readings above 50 signal expansion.

The IMF may not pay the Greek aid after officials assess the country’s progress in cutting its budget deficit, FAZ said, citing no one. The IMF can only pay out funds when a country’s funding over the next 12 months is secure, the newspaper said. IMF, European Union and European Central Bank officials are apparently coming to the conclusion that this is not the case, the newspaper said.

Aussie Rises

Australia’s dollar rose after the statistics bureau said the nation’s gross domestic product contracted 1.2 percent in the first quarter from the previous three months. That compared with the median of estimates in a Bloomberg News survey for a 1.1 percent decline.

“The GDP number wasn’t as bad as some in the market were expecting,” said Derek Mumford, a Sydney-based director at Rochford Capital, a foreign exchange and interest-rate risk management firm. “We’re certainly seeing a bit of a rally in the Aussie dollar.”

The Aussie climbed 0.6 percent to $1.0739 and gained 0.5 percent to 87.44 yen.

The euro reached the highest level in more than a week against the British pound as concern eased that Greece will default on its debt and on speculation that the European Central Bank will raise interest rates to curb inflation.

Greece ‘Worries’

Greece is close to an agreement with the European Commission, ECB and the International Monetary Fund on a fiscal plan and privatization program, Kathimerini newspaper reported, citing people close to Prime Minister George Papandreou. Details are expected to be settled by tonight or tomorrow morning, the newspaper said.

“Worries over Greece’s funding needs seem to be easing a bit,” said Morio Okayasu, chief analyst in Tokyo at Japan Co., a unit of the online currency trading firm Gain Capital Holdings Inc. based in Bedminster, New Jersey. “This may cause some buying of the euro in the near term.”

Luxembourg Prime Minister Jean-Claude Juncker said May 30 that the euro region’s leaders will decide on a new aid package by the end of June and have ruled out a “total restructuring” of Greece’s debt.

ECB President Jean-Claude Trichet is scheduled to speak in Germany today after a report showed yesterday that the cost of living in the 17-nation euro region increased 2.7 percent in May. Trichet said on May 26 that the ECB is “carefully monitoring” inflation risks and stands “ready to do whatever is necessary” to fulfill its mandate.

China Concern

Swaps traders are betting the ECB will raise its target rate by 72 basis points over the next 12 months, up from bets on 67 basis-points of increases on May 27, a Credit Suisse Group AG index shows.

The euro traded at 87.669 pence after climbing to 87.699 pence, the highest since May 20.

The yen appreciated against 12 of its 16 major counterparts on concern China will tighten monetary policy, slowing the growth of the world’s second-biggest economy.

China may increase the yuan’s trading band, interest rates and banks’ reserve requirement ratio in June to curb inflation, the Shanghai Securities News reported today, citing unidentified market participants. The China Securities Journal also said separately the central bank may raise interest rates this month.

“Concern about China’s tightening leads to buying of the yen for risk aversion,” said Masato Mori, a manager of the foreign-exchange division support center in Tokyo at NTT SmartTrade Inc., a unit of Japan’s biggest phone operator. “There’s also a rebound from yesterday’s drop.”

The Shanghai Composite Index of Chinese shares fell as much as 0.6 percent today. The yen dropped 1.5 percent against the euro yesterday, the most since April 27.

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