Dollar, Yen Fall After Payrolls on Bets Demand for Risk to Rise

Sept. 4 (Bloomberg) -- The dollar and yen dropped against most of their major counterparts on bets investors optimistic the global economy will quickly recover bought higher-yielding assets after a report showed U.S. payroll losses slowed.

Canada’s currency was the best performer versus the yen among the most-traded currencies tracked by Bloomberg as the government reported the first gain in jobs since April. U.S. Treasury Secretary Timothy Geithner reaffirmed this week his commitment to supporting the global recovery before meeting with Group of 20 officials in London this weekend.

“The policy backdrop is exceedingly supportive,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “All the positive comments from Geithner and the G-20 authorities over the weekend will set us up for a nice bounce in risk.”

Japan’s currency slid 0.8 percent to 133.04 versus the euro at 4:08 p.m. in New York, from 132.03 yesterday. The dollar weakened 0.4 percent to $1.4302 per euro, from $1.4252, and rose 0.4 percent to 93 yen.

The yen declined 1.9 percent to 63.94 versus the New Zealand dollar and weakened 1.7 percent to 6.96 against the peso on speculation investors in Japan will sell their currency to buy higher-yielding assets elsewhere. The target lending rate of 0.1 percent in Japan compares with 2.5 percent in New Zealand and 4.5 percent in Mexico.

The euro rose briefly against the dollar after the Labor Department reported at 8:30 a.m. in Washington that job cuts slowed to 216,000 in August. The currency later approached the lowest level this week about 30 minutes after the report and then resumed gaining from about 11:40 a.m. to its intraday high of $1.4327.

Recovery ‘Uncertainty’

“There’s too much uncertainty about how this will play out,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “From a recession point of view, we still have a long way to go. Just look at the job losses. It’s not like any recovery we saw since 1980.”

The unemployment rate climbed to a 26-year high of 9.7 percent, and the Labor Department revised its estimate for job cuts in July to 276,000, from 247,000 previously.

The Standard & Poor’s 500 Index advanced 1.3 percent, trimming this week’s drop, as job losses last month fell short of the 230,000 decline predicted in a Bloomberg News survey of 79 economists.

The dollar fell against the South African rand for a third week in its longest stretch of declines since May, decreasing 2.1 percent to 7.5895. The euro slumped versus Japan’s currency, depreciating 0.6 percent.

Canadian Jobs

Canada’s dollar strengthened as much as 1.8 percent to C$1.0824 per U.S. dollar in the biggest intraday rally since July 15. Statistics Canada reported employment rose last month by 27,100, compared with economists’ median forecast of a drop of 15,000. The unemployment rate increased to 8.7 percent as the labor force grew.

The euro erased its gain versus the dollar yesterday as European Central Bank President Jean-Claude Trichet said the economic recovery in his region will be “rather uneven” after holding the target lending rate at a record low of 1 percent.

“Trichet sounded extremely dovish,” a team of Commerzbank AG analysts including Ulrich Leuchtmann in Frankfurt said in a report today. “It is hardly surprising that the dollar was able to benefit from it.”

The Federal Reserve signaled in minutes of its August meeting published on Sept. 2 that it’s trying to prepare investors for an end to some of its asset purchases as the U.S. economy shows signs it’s beginning to recover from its worst slump since the Great Depression.

G-20 Meeting

Geithner told reporters on the same day in Washington that it’s still “too early” for G-20 nations to implement exit strategies. Finance ministers and central bankers meet today and tomorrow in London.

The Dollar Index rose 1.2 percent to 78.975 on Aug. 7 as 10-year Treasury yields climbed after a report showed July payrolls dropped less than economists forecast. The gauge, which the ICE uses to track the currencies of six major U.S. trading partners, slid 0.4 percent to 78.144 today on reduced demand for the safety of the greenback.