Yen Falls as Expectations of Better Payrolls Boosts Risk Demand

Aug. 7 (Bloomberg) -- The yen fell versus 10 of the 16 most-actively traded currencies on speculation a U.S. report will show companies cut fewer jobs last month, spurring investors to seek higher-yielding assets abroad.

Japan’s currency also weakened after U.S. initial jobless claims declined more than economists estimated. The pound may decline for a second day versus the dollar and the euro after the Bank of England said the U.K. recession is deeper than previously estimated. Australia’s dollar is poised to rise a fourth week versus the greenback and the yen on expectations the Reserve Bank of Australia will upgrade growth forecasts.

“People are looking at the recent improvement in initial U.S. claims and suggesting there is an upside risk to tonight’s non-farm payrolls data,” said Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo. “The market will try to price that in ahead of the data.”

The yen weakened to 137.08 per euro as of 9:23 a.m. in Tokyo, from 136.94 yesterday in New York, when it slid 0.1 percent. It traded at 95.42 per dollar from 95.46. The Australian dollar was little changed at 84.01 U.S. cents from 83.95 cents yesterday. It bought 80.14 yen from 80.13 yen.

The pound traded at $1.6797 from $1.6783 yesterday in New York, when it slid as much as 1.4 percent in the biggest intraday drop since July 6. Against the euro, the pound was at 85.53 pence, from 85.49 pence yesterday, when the British currency fell 0.8 percent in its first retreat in nine days.

U.S. Payrolls

The U.S. lost 325,000 jobs in July, slowing from a reduction of 467,000 in the prior month, according to the median forecast of 82 economists in a Bloomberg News survey. The unemployment rate will increase to 9.6 percent, according to a separate survey. The report is due at 8:30 a.m. in Washington.

Goldman Sachs Group Inc. lowered its forecast yesterday for U.S. job losses in July to 250,000 from 300,000. The bank maintained its forecast for an unemployment rate of 9.7 percent.

Investors should buy the euro against the pound after the Bank of England yesterday expanded its asset-purchase program by 50 billion pounds ($84 billion) to 175 billion pounds, according to Morgan Stanley.

The central bank’s move suggests policy makers, who based the decision on quarterly forecasts prepared this month, assessed that their stimulus plan and record low interest rates weren’t enough to fight a recession that’s deeper than previously anticipated.

The U.K. economy contracted at a faster pace in the second quarter than previously estimated, the National Institute of Economic and Social Research said on Aug. 5, changing its estimate to a 0.8 percent drop from a 0.4 percent decrease.

‘Negative Pound’

“The BOE’s recent expansion of quantitative easing highlights the ongoing risks to the U.K. economy,” said Sophia Drossos, a currency strategist at Morgan Stanley, wrote in a research note yesterday. “We prefer to express our negative pound view via a basket of trades.”

Morgan Stanley said it went long the euro at 85.50 British pence yesterday, with a target of 90.00 pence and a stop-loss order at 84.00 pence. A long position is a bet an asset will strengthen. A stop-loss order is an automatic instruction to sell or buy a currency should it reach a particular level.

Australia’s dollar traded near the highest level since September versus the U.S. dollar after a report yesterday showed the number of people employed in the South Pacific nation rose by 32,200 from June. Economists had forecast a decline.

“Following the surprising good news on the labor market, traders priced in almost half another 25 basis point-rate hike by year-end, which has provided the Aussie with significant support on the crosses,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a report today. Australia’s currency may strengthen to 86 U.S. cents over the next week or so, he said.