Dollar, Yen Decline as Gain in U.S. Private Payrolls Boosts Risk Appetite

Bloomberg.com   |  September 3 2010 10:58 EDT

The dollar and yen fell against most major counterparts as private employers added more jobs than forecast in August, easing concern the recovery in the world’s biggest economy is slowing and fueling investors’ risk appetite.

The euro touched a two-week high versus the greenback as overall U.S. employment declined by about half of the amount forecast in a Bloomberg News survey. The yen pared losses after data showed slower growth in U.S. service industries. The Canadian dollar was the top performer among the most-traded currencies as investors sought assets linked to growth. The Swiss franc, considered a haven currency, was the worst.

“The market is taking the dollar weaker against commodity and risk-related currencies on the back of a better-than- expected number,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. The data “should contribute to better risk-on trading today.”

The dollar depreciated 0.3 percent to $1.2867 per euro at 10:12 a.m. in New York, from $1.2825 yesterday, and touched $1.2889, the weakest level since Aug. 19. The yen weakened 0.2 percent to 84.43 per dollar, from 84.28, and declined 0.5 percent to 108.62 per euro, from 108.09.

Stocks climbed, with the Standard & Poor’s 500 Index rising 0.9 percent in its fourth straight daily gain.

Fourth Daily Gain

Europe’s shared currency rose for a fourth day against the dollar, the longest winning streak in five weeks, as Labor Department figures showed payrolls that exclude government agencies climbed 67,000, after a revised 107,000 increase in July that was more than initially estimated. The median estimate of economists in a Bloomberg survey called for a gain of 40,000 private positions. Overall payrolls shed 54,000 jobs, compared with a forecast for a drop of 105,000.

The Canadian dollar strengthened 0.9 percent to C$1.0430 per U.S. dollar. New Zealand’s dollar, another growth-linked currency, rose 0.7 percent to 72 U.S. cents.

The yen and dollar remained lower against most major counterparts as the Institute for Supply Management’s index of U.S. non-manufacturing businesses, which covers about 90 percent of the economy, fell to 51.5 in August from 54.3 the prior month. A reading of 50 is the dividing line between expansion and contraction.

The greenback dropped yesterday against most of its major counterparts after pending resales of homes in the U.S. unexpectedly rose and European Central Bank President Jean- Claude Trichet said a double-dip recession is “not in the cards.” Growth-sensitive currencies such as the New Zealand dollar and Brazilian real strengthened.

Euro Versus Yen

The euro rose earlier today against the yen after European retail sales gained for a third month in July. The Swiss franc erased a fourth weekly gain against Europe’s common currency after inflation slowed in Switzerland. The currency fell 1.2 percent for the day to 1.3139 per euro, poised for a 0.2 percent weekly loss.

The euro area’s economy will probably expand between 1.4 percent and 1.8 percent this year, the European Central Bank said yesterday. That’s up from a previous forecast range of between 0.7 percent and 1.3 percent.

The yen has advanced 13 percent this year in the biggest gain among 10 developed-world counterparts as investors sought haven, according to Bloomberg Correlation-Weighted Currency Indices. The euro has dropped 9.2 percent, and the dollar is up 2.4 percent.

Japan’s currency fell earlier today versus Asian counterparts after Ichiro Ozawa, a candidate in a party election this month that will decide Japan’s prime minister, said intervention to stem the yen’s gains is a possibility.

Yen Intervention

Ozawa warned for a third day of the risks stemming from a surging yen and again touched on the option of market intervention. Ozawa, head of the largest faction in the ruling Democratic Party of Japan, is challenging Prime Minister Naoto Kan at a party leadership contest Sept. 14. Central banks intervene in foreign-exchange markets by buying or selling currencies to influence exchange rates.

“Ozawa is considered to be a type of politician who can play hard in order to achieve a set goal,” said Morio Okayasu, chief analyst in Tokyo at FOREX.com Japan Co., a unit of the online currency trading firm Gain Capital in Bedminster, New Jersey. “If he wins the race, the dollar-yen may see an unexpectedly large rebound.”

Japan hasn’t intervened in the foreign-exchange market since 2004, when the currency was at about 109 per dollar. The Bank of Japan, acting on behest of the Ministry of Finance, sold 14.8 trillion yen ($175 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003.

August Gain

The yen gained in August for a fourth month versus the dollar amid data that showed purchases of existing homes in the U.S. tumbled twice as much as forecast, new-home sales unexpectedly fell and durable-goods orders rose less than anticipated. The currency touched a 15-year high versus the greenback, 83.60 yen, on Aug. 24.

U.S. economic growth slowed to 1.6 percent in the second quarter, from 3.7 percent from January through March, the Commerce Department reported on Aug. 27.

Retail sales in the 16-nation euro area advanced 0.1 percent from June, when they gained 0.2 percent, the European Union’s statistics office in Luxembourg said today. Economists in a Bloomberg survey forecast a 0.2 percent gain.