The Dollar

Dollar Rises to Five-Week High on Below-Forecast Job Losses

May 2 (Bloomberg) -- The dollar rose to a five-week high against the euro after a government report showed U.S. employers eliminated fewer jobs in April than economists forecast, indicating the labor market is weathering the economic slowdown.

The currency reached a two-month high against the yen and gained versus the Swiss franc and the South Korean won as traders speculated the Federal Reserve may be done reducing interest rates. The dollar is headed for a second weekly gain against the euro after the Fed cut rates on April 30 and said ``substantial'' easing since September would help foster growth.

``It's pretty likely we've seen the lows in the dollar,'' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. ``You've got a market that has been buying dollars, and certainly it got a nice reinforcement here.''

The dollar increased 0.4 percent to $1.5406 per euro at 10:30 a.m. in New York, from $1.5475 yesterday. It touched $1.5361, the highest level since March 24. The dollar rose 0.8 percent to 105.31 yen, from 104.44 yesterday. It touched 105.70 yen, the strongest since Feb. 28. The euro rose 0.4 percent to 162.26 yen, from 161.60 yen.

U.S. stocks rallied on the jobs data, with the Standard & Poor's 500 Index increasing 0.8 percent. Treasuries fell, pushing the two-year note's yield to 2.54 percent, the highest level since January.

Fed Rate Outlook

Futures on the Chicago Board of Trade showed an 86 percent chance that policy makers will keep the fed funds target unchanged at 2 percent when they next meet June 25, compared with 80 percent odds yesterday. The balance of bets is for a decrease of a quarter-percentage point. The Fed cut the benchmark rate from 2.25 percent this week in its seventh reduction since September.

The dollar has risen 1.5 percent against the euro this week, its biggest rally since February, and has appreciated 3.8 percent from a record low of $1.6018 reached on April 22. It's the first time the dollar has posted two weeks of gains since December. The U.S. currency is up 1.2 percent against the yen this week.

The yen fell 2 percent against the Brazilian real, 1.7 percent versus the South African rand and 1.6 percent against the New Zealand dollar as the advance in stocks on the jobs report encouraged investors to buy higher-yielding assets funded by loans made in Japan. The 0.5 percent target lending rate in Japan compares with 11.75 percent in Brazil, 11.5 percent in South Africa and 8.25 percent in New Zealand.

`Fed Is Done'

``This report reinforces that the Fed is done for the time being,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``It reinforces all the recent favorable trades out there, selling yen and buying equities.''

The pound was headed for a third weekly gain against the euro, the longest rally since May 2006, after the Bank of England said yesterday in its twice-yearly financial stability report that ``risk appetite will return gradually'' in coming months. Sterling increased 0.4 percent to 78.04 pence per euro, from 78.37 pence yesterday, and is up 0.9 percent this week.

The European Central Bank will cut its 4 percent main refinancing rate to 3.75 percent by the end of September and 3.50 percent by year-end, according to a Bloomberg News survey of economists.

The yield advantage of two-year German bunds over comparable-maturity Treasuries decreased to 1.37 percentage points, the narrowest since February, making dollar-denominated assets more attractive to investors.

Payroll Report

The dollar strengthened today as the Labor Department reported that U.S. payrolls shrank by 20,000 last month following a revised decline of 81,000 in March. The median forecast of 82 economists surveyed by Bloomberg News was for a drop of 75,000.

The U.S. Dollar Index, which measures the currency against six major counterparts, touched 73.698, the highest level since March 5. The index fell to 70.698 on March 17, the lowest since its 1973 inception.

``Buy the dollar!'' said Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut.

The U.S. currency increased 1 percent versus the Swiss franc and 0.7 percent versus the South Korean won. It dropped 0.8 percent against South Africa's rand.

The currency fell 0.3 percent against the euro on April 4, when the Labor Department reported that the U.S. lost 80,000 jobs in March, the most in five years. The dollar dropped 0.8 percent versus the yen, the most in more than a week.