Dollar Holds Two-Day Decline Versus Euro Before Reports on U.S. Employment

By Candice Zachariahs and Monami Yui - Nov 4, 2011 6:55 AM GMT+0700

The dollar held a two-day drop versus the euro before data forecast to show U.S. jobs growth slowed and the unemployment rate was unchanged, supporting the case for the Federal Reserve to consider monetary easing.

Europe’s common currency climbed versus the greenback yesterday, paring this week’s drop, after Greek Prime Minister George Papandreou signaled he won’t call for a referendum on a bailout plan. The yen is set for its first five-day drop against the dollar in three weeks after Japan on Oct. 31 sold its currency to curb appreciation.

“If you get a better-than-expected payrolls result, but it’s not good enough to bring the unemployment rate down, then that will probably keep expectations that there may be further policy easing down the track alive,” said John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd. That “tends to hurt the U.S. dollar,” he said.

The dollar traded at $1.3824 per euro as of 8:13 a.m. in Tokyo, after falling 0.6 percent to $1.3823 yesterday, and pared this week’s gain to 2.3 percent. The European currency was little changed at 107.93 yen and has risen 0.6 percent since Oct. 28. The yen traded at 78.07 per dollar from 78.06 yesterday and 75.82 last week after touching a post-war record high 75.35 on Oct. 31.

U.S. payrolls climbed by 95,000 workers last month after a 103,000 increase in September, according to the median forecast of economists surveyed by Bloomberg News ahead of today’s data from the Labor Department. The jobless rate was 9.1 percent for a fourth consecutive month, the report may also show.

Greece Vote

The 17-nation euro yesterday advanced after Papandreou scrapped a referendum on an accord with the European Union to avert a split in his party before a confidence vote scheduled for midnight tonight. Greece’s largest opposition party rebuffed his overtures to form a national government, raising the prospect of elections.

The premier has struck a deal to step down after tonight’s confidence vote and hand power to a negotiated government, Reuters reported yesterday.

“There are downside risks to euro,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s biggest lender. “You will still get more softening of the data in Europe and it’s easy to come up with a scenario where you get some problem in Greece or in Italy and that drags down the euro.”

The euro may drop to about $1.32 by year-end, he said.

A euro-area composite index based on a survey of purchasing managers in the services and manufacturing industries fell to 47.2 in October from 49.1 in September, London-based Markit Economics is forecast to say today according to economists in a Bloomberg survey. That would be the lowest since July 2009.

The euro has dropped the most over the past year among 10 developed-nation currencies, weakening 3.6 percent, according to Bloomberg Correlation-Weighted Indexes. The dollar fell 1 percent, and the yen rose 1.2 percent.

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.