Dollar Snaps Biggest Advance in 2 Weeks Versus Euro Before Jobs

The dollar snapped its biggest advance against the euro in two weeks before the U.S. releases April jobs data after the previous report disappointed with employers adding the fewest positions in nine months.

The euro yesterday dropped versus 15 of its 16 major peers after European Central Bank President Mario Draghi said policy makers may take the unprecedented step of charging banks to hold excess reserves. Australia’s dollar was set for its longest weekly losing streak versus the New Zealand currency in 12 years as traders raised bets the bigger nation’s Reserve Bank will cut borrowing costs next week.

“The data has softened recently and that could show up in non-farm payrolls,” said Richard Grace, the Sydney-based chief currency strategist and head of international economics at Commonwealth Bank of Australia. “If the number is weak, the U.S. dollar will go down a little as will long bond yields.”

The dollar traded little changed at $1.3067 per euro as of 7:11 a.m. in London after rising 0.9 percent yesterday, paring this week’s decline to 0.3 percent.

The U.S. currency fetched 98.10 yen from 97.94 yesterday and 98.05 on April 26. The 17-nation euro was at 128.16 yen from 127.95, heading for a 0.3 percent climb on the week.

Japanese markets are closed today and on May 6 for holidays.

Payrolls increased by 140,000 workers after an 88,000 gain in March, according to the median forecast of economists surveyed by Bloomberg News before a Labor Department report. The unemployment rate may have stayed at 7.6 percent, matching March’s reading as the lowest since December 2008.

Fed, ECB

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against currencies of six trading partners, fell on May 1 after the Federal Reserve said it will maintain its bond buying at a pace of $85 billion a month to spur growth and is prepared to raise or lower the amount as economic conditions evolve. It was little changed at 82.243 today.

The ECB, meeting in Bratislava, Slovakia, cut its benchmark rate by a quarter-percentage point to 0.5 percent yesterday. It reduced its marginal lending rate, which banks use for overnight credit, to 1 percent, from 1.5 percent, and kept its deposit rate at zero.

‘Technically Ready’

Asked at a press conference if further action could include taking the deposit rate into negative territory, Draghi said the central bank is “technically ready” and that “we will look at this with an open mind.” He said the ECB also will continue to lend banks as much money as they need at least until mid-2014.

“Draghi has opened up more flexibility to act on rates to the downside,” Greg Gibbs, a Singapore-based senior currency strategist at Royal Bank of Scotland Group Plc, wrote in a note to clients. “As such, we might expect the euro to be more responsive to negative news than it has been to date.”

The euro may decline toward $1.2950, “but it’s a less compelling trade from here,” he wrote.

A report today will probably show that euro-area producer-price inflation slowed to the lowest annual rate in three years, according to the median estimate of analysts surveyed by Bloomberg. Factory-gate prices in the 17-nation economy rose 0.6 percent in March from a year earlier, compared with a 1.3 percent increase in the prior month, the European Union’s statistics office in Luxembourg is forecast to say.

The euro has declined 1.9 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-market currencies. The yen has dropped 3.3 percent and the dollar gained 2.9 percent.

Rate Cut

The Australian dollar was poised to decline this week against 14 of its 16 most-traded peers as swaps traders see a 59 percent chance the nation’s central bank will lower its benchmark rate from 3 percent on May 7, according to data compiled by Bloomberg. The RBA will cut rates by 62 basis points over 12 months, according to a Credit Suisse Group AG index.

The Australian dollar fell to NZ$1.2034, the weakest since October 2009, before trading 0.1 percent lower at NZ$1.2045, down 0.6 percent this week. It’s poised for a seventh week of declines that would be the longest losing streak since March 2001. The Aussie rose 0.2 percent to $1.0263, while the New Zealand dollar gained 0.3 percent to 85.20 U.S. cents.

“We’re still short the pair,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., referring to positions betting on declines in the Australian currency versus New Zealand’s. “Our view all along was that Aussie-kiwi would fall because of the relative central bank paths.”

Before it's here, it's on the Bloomberg Terminal.