Dollar Falls After U.S. Economy Adds Fewer Jobs Than Forecast
May 5 (Bloomberg) -- The dollar fell against the euro and yen after a government report showed the U.S. economy added fewer jobs than forecast last month.
Investors may reduce wagers the Federal Reserve will raise interest rates one more time after an increase next week. The dollar has fallen about 2 percent versus the euro since Fed Chairman Ben S. Bernanke said on April 27 that the central bank may stop raising rates ``at some point,'' after 15 straight increases since June 2004.
``My guess is if you have a number that's in line or slightly weak you're going to see the dollar sell off even further,'' Greg Anderson, a currency strategist with ABN Amro NV in Chicago, said before the report.
The dollar traded at $1.2751 per euro at 8:33 a.m. in New York, compared with $1.2691 per euro late yesterday and $1.2634 per euro a week ago. Europe's common currency yesterday reached $1.2724, the strongest since May 12, 2005. The dollar was at 113.38 yen from 113.65.
The 138,000 gain in payrolls for April followed a revised 200,000 increase the month before and was the smallest increase since October, the Labor Department reported today in Washington. Average wages were up 3.8 percent from April 2005, the biggest gain since August 2001.
The slowdown in hiring suggests record gasoline prices and rising borrowing costs are forcing companies to rein in costs to maintain profits. Hourly earnings increased as factories, which tend to pay higher wages than service providers such as retailers, added the most jobs in almost two years.
Rate Expectations
Following Bernanke's remarks last month, interest-rate futures traders cut bets Fed policy makers will raise rates after their next meeting on May 10. Traders are certain the central bank will raise its benchmark rate a quarter-percentage point to 5 percent next week.
Before the jobs report, yields on rate futures showed a 46 percent chance the Fed will raise its target to 5.25 percent at its meeting in June, down from 64 percent the day before Bernanke's testimony to Congress.
The European Central Bank yesterday left its benchmark rate at 2.5 percent. It has increased borrowing costs twice from 2 percent since the start of December. The Bank of Japan has kept rates near zero percent for over four years.
The yield advantage of 10-year U.S. Treasury notes over equivalent German government notes was 111 basis points before the jobs report, up from 53 basis points at the beginning of last year. The yield premium has averaged 102 basis points over the past 12 months. A basis point is 0.01 percentage point.
European Growth
European finance ministers said late yesterday the euro- region economy can withstand higher interest rates and a stronger currency after ECB President Jean-Claude Trichet signaled a June increase.
``Trichet has given the green light to a June rate hike,'' said Jeremy Stretch, a currency strategist at Rabobank Groep in London. ``Rate hike expectations have been supportive for the euro.''
Trichet said yesterday higher interest rates may be ``warranted'' to stem inflation. Fellow ECB policy maker Axel Weber said today that ``all options are open'' on the size of future rate moves. The Frankfurt-based central bank held rates at 2.5 percent this month, after lifted borrowing costs twice since the start of December.
``He laid the ground work for a June rate hike,'' Sharada Selvanathan, a currency strategist at BNP Paribas SA, said in Singapore. ``The euro should remain pretty well bid.''
Growth in the 12 nations that share the euro is ``certainly stronger than we had expected,'' said French Finance Minister Thierry Breton after talks with his euro-area counterparts in Brussels.
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