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

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 is headed for a second weekly gain versus the euro after the Federal Reserve cut interest rates on April 30 and said ``substantial'' easing since September would help foster growth. The yen fell against the Brazilian real and the South African rand as the jobs report encouraged investors to buy higher-yielding assets financed in Japan.
``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.''
The dollar increased 0.4 percent to $1.5411 per euro at 2:05 p.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 105.25 yen, from 104.44 yesterday. It touched 105.70 yen, the strongest since Feb. 28. The euro rose 0.4 percent to 162.21 yen, from 161.60 yen.
Treasuries fell today on the payroll report, pushing the two-year note's yield to 2.54 percent, the highest level since January. Gold headed for a third weekly drop, its longest losing streak in a year, as the dollar's gain against the euro made the metal less attractive as a currency hedge. Gold futures traded in New York climbed 0.8 percent to $857.50 an ounce today.
Fed Rate Outlook
Interest-rate 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 1.2 percent against the euro this week, its biggest rally since March, and has appreciated 3.6 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 dollar rose 0.8 percent against the yen this week.
The yen fell more than 1 percent against the Brazilian real, the South African rand and the New Zealand dollar on speculation the payroll data led investors to resume carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. The 0.5 percent target 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 of the recent favorable trades, selling the yen.''
The dollar pared gains versus the euro after failing to break through $1.5340, where sell orders concentrated, according to Ruskin. ``The market is certainly very cautious not to push it too far,'' he said.
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.
Bund Spread
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.
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 0.9 percent versus the Swiss franc and was up 0.7 percent against the South Korean won. It dropped 0.9 percent against the Brazilian real and 0.4 percent versus New Zealand's dollar.
Traders see the dollar will fluctuate less in the next several months. The implied volatility of options on the dollar against the most actively traded currencies declined to 10.4 percent today, the lowest since Feb. 28, according to data complied by JPMorgan Chase & Co. The volatility jumped to 14.5 percent on March 17, the highest since 1998.