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Dollar Rises to Week-High Versus Euro as Fed Damps Easing

The dollar rose to the highest in more than a week versus the euro as signs of improving U.S. employment supported the Federal Reserve’s decision to hold off from increasing monetary accommodation.

The U.S. currency rose against all but one of its 16 major peers before a private report forecast to show job gains held near the most in two months. The euro fell toward the week low reached yesterday against the yen as European Central Bank officials prepare to meet on policy amid evidence of slowing growth in the region. Australia’s dollar sank to an 11-week low as data showed the nation had an unexpected trade deficit.

“The U.S. is much further along in the recovery process than the euro area, and the Fed has confirmed this,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “The euro should continue to weaken against the dollar. The questions over the periphery continue to be very large,” he said, referring to Europe’s high debt and deficit nations.

The dollar climbed 0.3 percent to $1.3189 per euro at 8:14 a.m. London time after earlier reaching $1.3182, the strongest since March 22. It lost 0.1 percent to 82.69 yen. Europe’s shared currency dropped 0.5 percent to 109.09 yen after reaching 108.70 yesterday, the lowest since March 23.

“A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum,” the Fed’s March meeting minutes released yesterday in Washington showed. That contrasts with the assessment at the January meeting, in which some officials saw current conditions warranting additional action “before long.”

Jobs Data

ADP Employer Services data today will show U.S. employment increased by 206,000 last month, according to the median estimate of economists in a Bloomberg News survey. That compares with a gain of 216,000 in February, the biggest in two months.

Data from the Labor Department due tomorrow will indicate applications for jobless insurance fell to 355,000 in the week ended March 31, the least since April 2008, according to a Bloomberg survey of economists. A separate report on April 6 will probably show employment rose by more than 200,000 workers for a fourth-consecutive month.

“We are far below maximum employment and are likely to remain there for some time,” San Francisco Fed President John Williams said yesterday in San Diego. “Under these circumstances, it’s essential that we keep strong monetary stimulus in place. The recovery has been sluggish.”

Growth Forecasts

Williams forecast U.S. economic growth of 2.5 percent this year and 2.75 percent in 2013. That compares with estimated gains in gross domestic product of 2.2 percent this year and 2.4 percent next year, according to median projections in a Bloomberg survey.

The euro fell versus the dollar and yen before ECB policy makers gather for an interest-rate decision today. Officials are expected to keep the central bank’s key rate unchanged at 1 percent, according to all 57 forecasters surveyed before the meeting.

Retail sales in the euro-area probably dropped 0.2 percent in February after a 0.3 percent gain the previous month, according to the median estimate in a separate survey.

Nothing New

“I don’t expect anything new out of the ECB meeting,” Thomas Averill, Sydney-based managing director of Rochford Capital, said. “The European economy is struggling in comparison to the U.S. I think there’s very little economic reason for the euro to appreciate against the U.S. dollar.”

UBS AG said the euro may rise to a five-week high against the greenback, citing trading patterns.

Should the 17-nation currency break through its March 27 high of $1.3386, it may extend gains to $1.3486, matching the Feb. 29 peak, Geoffrey Yu, a currency analyst at UBS, wrote in a report today.

The euro has lost 0.8 percent in the past week, the second-worst performance after the Australian dollar among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

The so-called Aussie slid 0.5 percent to $1.0277 and touched $1.0264, the weakest since Jan. 16. New Zealand’s currency fell 0.4 percent to 81.58 U.S. cents. The MSCI Asia Pacific Index of shares lost 1.5 percent.

Australia posted a trade deficit for a second month in February, completing the first consecutive shortfalls in two years. Imports outpaced exports by A$480 million, from a revised A$971 million deficit in January, the Bureau of Statistics said in Sydney today. The median estimate in a Bloomberg survey was for a surplus of A$1.1 billion.

“There are some concerns that exports are really slowing, and that’s pretty negative for the Aussie,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore.

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