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U.S. Dollar May Ease on Concerns Over Employment, Survey Finds

But a decline in the currency may be limited by expectations that crude oil prices will extend their slide.

August 30, 2004|From Bloomberg News

The dollar may have peaked on concern that the pace of U.S. job creation will fall short of economists' estimates for a third consecutive month, a Bloomberg News survey indicates.

Forty percent of the 74 traders, investors and strategists polled Friday from Tokyo to New York advised buying the euro against the dollar, 38% recommended selling and the rest favored holding it. About 42% said to buy the yen versus the dollar, 36% to sell and 22% to hold.

The dollar climbed 2.5% against the euro last week on optimism that a slowdown in the U.S. economy last quarter would prove temporary. The gains will be surrendered in the event a Labor Department employment report Sept. 3 disappoints investors, said Donald H. Straszheim, president of Straszheim Global Advisors Inc. and a former chief economist at Merrill Lynch & Co.

"If this next month's jobs report is weak, there will be a lot of people emphasizing the vulnerability of the U.S. economy, and that will mean the dollar will weaken," said Straszheim, who is based in Santa Monica.

American companies probably added 150,000 jobs in August, according to the median forecast of economists surveyed by Bloomberg.

July's increase of 32,000 was an eighth of the median forecast of economists, and the dollar tumbled 1.8% against the euro after the figures were released. The U.S. currency shed 1.3% on July 2, when the June data showed a 112,000 gain instead of the 250,000 predicted.

"After months of disappointment, we may well see another weak U.S. employment" report, said Tetsu Aikawa, vice president of derivatives and foreign-exchange marketing at UFJ Bank Ltd. in Tokyo, a unit of Japan's fourth-largest bank by assets. "Selling the dollar looks like the way to go."

A fall in the dollar would end two weeks of gains against the euro. The U.S. currency advanced to $1.201 late Friday in New York, according to EBS, an electronic foreign-exchange trading system. It climbed 0.5% against the yen to 109.68.

The dollar will probably weaken to about $1.24 should job growth total about 100,000, said Adrian Hughes, a currency strategist in London at HSBC Holdings. "It would have to be above 200,000, I would say, before we see $1.19 again."

Trading in the $1.2-trillion-a-day currency market may be less than usual today because of a national holiday in Britain.

Federal Reserve Gov. Ben S. Bernanke said last week that a jump in oil prices that led to slower growth from April to June wouldn't derail the expansion.

The Fed raised its interest rate target for overnight loans between banks, called the federal funds rate, by a quarter of a point in both June and August, from a four-decade low of 1%.

"A weak employment report will reduce the probability that there will be an increase in the funds rate in September," said Edwin Truman, a senior fellow at the Institute for International Economics in Washington and a former staff director of the Fed's international finance division. "They may skip a meeting."

The U.S. currency's decline may be limited by expectations that crude oil prices will extend their slide, easing concern that the 33% rise this year will curb consumer spending.

Crude oil futures had the biggest weekly drop in a year, falling 7.6% to $43.18 a barrel on the New York Mercantile Exchange. Nineteen of 39 respondents in a separate Bloomberg survey expect crude oil futures to drop again this week.

"The lower oil prices go, the better it is for a sustained recovery in all economies," said Chris Melendez, president of currency hedge fund Tempest Asset Management in Newport Beach.

The Institute for Supply Management may report Sept. 1 that its factory index fell to 60 in August from 62 in July, based on the median forecast of economists polled by Bloomberg. Readings above 50 signal expansion.

The index has been over 60 for nine straight months, the longest stretch since the early 1970s.

The yen may advance for the second week in three, the Bloomberg survey found, on optimism international investors will keep buying Japanese stocks, spurring demand for the currency required to purchase them.

Japan's benchmark Nikkei 225 stock average rose 2.9% last week, the most since June, and is up 6.2% since reaching a three-month low Aug. 16. Foreigners bought more Japanese stocks in the week ended Aug. 20 than at any time since mid-July, the Ministry of Finance said Thursday.

"The recovery in the Nikkei will certainly draw in foreign capital; that's a yen-supportive development," said Harvinder Kalirai, head of market research in Sydney at State Street Corp., the world's largest custodian of assets. "The fall in oil has taken pressure off the yen as well."

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