Dollar Falls as Employers Eliminate More Jobs Than Forecast

By Ye Xie

Feb. 6 (Bloomberg) -- The dollar dropped versus the euro for the first time in three days as a report showed U.S. employers eliminated more jobs last month than economists forecast.

The euro fell for a third day versus the pound as a report showed German industrial production dropped in December by the most in at least 18 years. The Australian dollar rose versus the greenback on bets the central bank will slow the pace of rate cuts after it said policies “now in place” support the economy.

“There’s no indication that we’ve passed the worst of the economic slowdown,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “The dollar is in a slight correction.”

The dollar slid 0.2 percent to $1.2817 per euro at 8:53 a.m. in New York, from $1.2790 yesterday. It reached $1.2706 on Feb. 2, the strongest level since Dec. 5. The yen declined 0.4 percent to 91.58 per dollar from 91.23. It touched 92.25 yesterday, the weakest level since Jan. 8, after breaking through a two-week range of about 88 to 90. The yen lost 0.6 percent to 117.34 versus the euro from 116.63.

U.S. employers eliminated 598,000 jobs last month, following a reduction of 577,000 in December, the Labor Department said today in Washington. The median forecast of 75 economists surveyed by Bloomberg News was for a reduction of 540,000. The unemployment rate increased to 7.6 percent. The U.S. lost about 2.6 million jobs last year.

German Output

The euro dropped 0.1 percent to 87.43 pence as the Economy Ministry in Berlin said German industrial output plunged a seasonally adjusted 4.6 percent in December, the biggest decline since records for a reunified Germany began in January 1991. The median forecast of 35 economists surveyed by Bloomberg was for a decline of 2.5 percent.

The International Monetary Fund reiterated yesterday forecasts for the world’s largest economies, saying U.S. gross domestic product will contract 1.6 percent, Japan’s will shrink 2.6 percent and the euro area will decline 2 percent in 2009. The fund in November foresaw a 0.7 percent U.S. drop and declines of 0.2 percent in Japan and 0.5 percent in the euro zone.

The Australian dollar appreciated 1.1 percent to 65.94 U.S. cents after the Reserve Bank said in a quarterly statement that the “expansionary monetary and fiscal policies now in place will help to cushion” the economy from “contractionary forces.”

December Report

The dollar gained 1.7 percent versus the euro on Jan. 9, when the December payroll report showed job losses were less than some economists forecast.

Investors have been “increasingly disinclined” to trade currencies on the day the Labor Department releases its payrolls report, contributing to the dollar’s “erratic” response to the data, according to a note by Citigroup Inc. on Jan. 7.

The euro versus the dollar moved in the opposite direction of a surprise payroll reading “on a close-to-close basis” only four times last year, compared with nine times in 2007, according to the report. Trading volume on days the Labor Department releases its payroll report “have more often than not fallen short” of its average for the rest of the month since March 2007, Citigroup said.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net