Dollar May Fall Second Day Versus Yen on Job Cuts, Stock Drop

Jan. 8 (Bloomberg) -- The dollar may weaken a second day against the yen before U.S. government data forecast to show unemployment increased, reinforcing investor expectations for a protracted recession.

The greenback may also decline for a second day versus the euro after a private report showed yesterday that U.S. employers cut more jobs in December than economists estimated. Australia’s currency may weaken after prices for commodities the country exports fell, suggesting corporate revenue will decline.

“The dollar is at risk of falling further,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The labor market is an indication that it will be a long time before the U.S. economy improves.”

The dollar traded at 92.66 yen at 8:23 a.m. in Tokyo, little changed from yesterday in New York. The dollar was at $1.3641 per euro from $1.3644. It touched $1.3313 on Jan. 6, the strongest level since Dec. 12. The euro traded at 126.39 yen from 126.42 yen. The dollar may weaken to 91.80 yen and $136.90 per euro today, Soma said.

U.S. nonfarm payrolls fell 500,000 in December, bringing last year’s decline to 2.4 million, the most since 1945, according to a Bloomberg survey before Labor Department figures due tomorrow. The unemployment rate likely jumped to 7 percent, the highest level since 1993.

Labor Market

Companies in the U.S. slashed 693,000 jobs in December, the most since records began in 2001, ADP Employer Services said yesterday. The median forecast of a Bloomberg News survey of 24 economists was for a reduction of 495,000.

The Dollar Index on ICE futures, which tracks the greenback versus six major U.S. trading partners, fell 0.7 percent yesterday.

The dollar’s tendency to rise as investors seek protection from stock-market declines is ending because economic growth is becoming the main driver for the U.S. currency, foreign-exchange strategists at BNP Paribas SA said.

The dollar rallied 30 percent versus Brazil’s real and gained 4 percent against the euro last year as investors sought safety in U.S. Treasuries after the MSCI World stock index slumped 42 percent and writedowns and losses at the world’s largest financial institutions since the start of 2007 totaled $1 trillion.

The rally stalled mid-December as investors sold Treasuries for higher-yielding assets elsewhere. The greenback has lost 7 percent against the New Zealand dollar, the Australian dollar and the South African rand since Dec. 15.

Sell The Euro

Merrill Lynch & Co. recommended investors sell the euro versus the dollar through options, sell the pound versus the dollar and sell the euro versus the Swiss franc. The dollar will rise to $1.15 per euro by the end of March and appreciate to 58 cents versus the Aussie from 71 cents yesterday, according to the bank’s forecasts.

The euro traded at 90.23 British pence from 90.35. It dropped to less than 90 pence yesterday for the first time since Dec. 17. It has lost 5.8 percent this year on speculation slowing inflation will give the European Central Bank room to cut interest rates to tackle a recession.

The British currency slid 23 percent against the euro last year, its biggest annual drop since the common currency’s debut, as U.K. policy makers cut borrowing costs by more than the ECB as the British economy entered its first recession in 17 years.

The Bank of England will lower its benchmark rate by half a percentage point to an all-time low of 1.5 percent when it announces a policy decision today, according to a Bloomberg survey.

Parker Index

Foreign-exchange funds gained 0.08 percent in November, as volatility increased in the currency market, according to Parker Global Strategies LLC.

The Parker FX Index, which tracks 63 firms managing more than $33 billion in assets, advanced 4.38 percent last year through November, the Stamford, Connecticut-based firm said in a statement yesterday.

Volatility on major currencies doubled to 20 percent by the end of November, from 9.4 percent on July 31, according to an index compiled by JPMorgan Chase & Co. It was at 19.69 percent yesterday.