Dollar Is Near Three-Week Low Before U.S. Job Market Reports

By Stanley White and Kosuke Goto

July 2 (Bloomberg) -- The dollar traded near a three-week low against the euro before an industry report today that may show U.S. companies lost jobs in June for the first time in four months.

The U.S. currency also traded near a three-week low versus the yen before government data tomorrow that may show U.S. employers cut jobs for a sixth consecutive month, prompting traders to pare bets the Federal Reserve will raise interest rates. South Korea's won fell for a fourth day on speculation soaring oil prices will bolster importers' demand for dollars.

``Buying the dollar now seems to be the wrong move,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``Weak numbers from the labor market are sure to push the dollar lower. You can't deny that there are sufficient reasons to worry that the U.S. economy will slow.''

The dollar traded at $1.5804 per euro at 9:54 a.m. in Tokyo from $1.5793 yesterday. It touched $1.5836 on June 30, the lowest level in three weeks, and dropped to a record $1.6019 on April 22. The dollar was little changed at 105.99 yen. It fell to a three-week low of 104.99 yen on June 30. Japan's currency traded was at 167.54 versus the euro from 167.59. The dollar may fall to $1.5830 per euro and 105.50 yen today, Ishikawa forecast.

South Korean Won

The won fell 0.3 percent to 1,050.35 against the dollar as oil gained for a second after the International Energy Agency said supplies may not keep up with demand through 2013.

Asia's worst-performing currency after the Thai baht, may stop falling because the nation's current-account deficit will narrow, Bank of Korea Deputy Governor Rhee Gwang-Ju said in an interview yesterday. The shortfall will shrink to $2.5 billion in the second half from $6.5 billion in the first half, he said.

Companies in the U.S. probably eliminated 20,000 jobs last month after adding 40,000 in May, according to the median forecast of 27 economists surveyed by Bloomberg News. The decline would be the first since February. The report from ADP Employer Services is due at 8:15 a.m. New York time.

The ADP report, which doesn't include government jobs, has overstated private employment changes by 104,000 on average each month since November. A Labor Department report will probably show tomorrow that non-farm payrolls shrank by 60,000 workers last month, according to the median forecast of 79 economists surveyed by Bloomberg News.

Labor Market

``Weak results in the ADP report would raise speculation about weak jobs data'' tomorrow, Tohru Sasaki and Junya Tanase, currency strategists in Tokyo at JPMorgan Chase & Co., wrote in a research note today. ``This would reduce expectations of a rate hike and push down the dollar.''

Futures on the Chicago Board of Trade showed a 25 percent chance the Fed will raise its 2 percent target rate for overnight lending between banks by a quarter-percentage point on Aug. 5, compared with 38 percent odds a week ago.

Crude oil for August delivery rose 68 cents to $141.65 a barrel in after-hours electronic trading on the New York Mercantile Exchange. The euro-dollar exchange rate and oil have moved in the same direction 90 percent of the time during the past year, according to Bloomberg calculations based on the correlation of their value changes. Oil touched a record $143.67 on June 30.

``If oil prices remain persistently higher, the dollar is most likely to be under pressure,'' said Boris Schlossberg, senior currency strategist at DailyFX.com in New York, an online currency dealer.

ECB Policy Meeting

The euro may gain on speculation the European Central Bank will raise interest rates tomorrow and signal more are needed in the second half of the year to stem inflation.

The ECB will increase its benchmark rate by a quarter- percentage point to 4.25 percent, according to 57 of 58 economists surveyed by Bloomberg News.

ECB executive council member Lorenzo Bini Smaghi said yesterday the bank's inflation-fighting mandate means it acts faster than the U.S. Fed's Board. ECB President Jean-Claude Trichet said June 25 the bank is ``in a state of heightened alertness'' on prices.

``We expect the ECB to raise rates three times this year, including tomorrow's one,'' said Masafumi Yamamoto, head of foreign-exchange strategy in Tokyo at Royal Bank of Scotland Group Plc, the world's fifth-largest currency trader. ``The euro may rise to $1.60 against the dollar in coming months.''

The ECB has kept its benchmark rate at 4 percent since June of last year. The Fed lowered rates seven times between September and April, to 2 percent from 5.25 percent.

The yen's real effective exchange rate, measured against 15 currencies of major trading partners, fell for a third month in June, data from the Bank of Japan showed today.

The rate, calculated by the central bank, slipped 2.8 percent last month to 97.2 from 100 in May. The index climbed to a 21-month high of 102.3 in March, as the yen reached 95.76 per dollar on March 17.

To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.netKosuke Goto in Tokyo at kgoto2@bloomberg.net
Last Updated: July 1, 2008 21:01 EDT