Dollar Rises Against Euro and Yen; Job Losses Are a Quarter of Forecasts

Oct. 7 (Bloomberg) -- The dollar rose for the first day in three after the U.S. economy's job losses last month were less than a quarter of the number forecast by economists. Today's gain reduced the dollar's loss against the euro for the week, its first weekly decline in five. Interest rate futures indicate traders expect the Federal Reserve will raise its benchmark three more times to 4.5 percent by January. "It's dollar positive because you still have a much more resilient U.S. economy than had been expected,'' said David Durrant, investment strategist at Bank Julius Baer & Co. in New York, which manages about $30 billion. "The Fed's path hasn't changed -- this number tells us that after the next rate hike we should be looking for more.'' Against the euro, the dollar traded at $1.2129 at 5 p.m. in New York, from $1.2178 late yesterday, according to electronic currency-trading system EBS. The dollar rose to 113.82 yen from 113.30. For the week the dollar dropped 0.9 percent against the euro and rose 0.3 percent against the yen. The Labor Department said employers cut 35,000 workers from their payrolls in September, and August's job gains were revised up to 211,000. Economists expected a loss of 150,000 jobs last month, based on the median of 73 estimates in a Bloomberg News survey.

August Impact
The dollar's gains were driven more by the revision to August, and the September data may present an incomplete picture of the storms' impact, said Russell LaScala, a currency trader in New York at Deutsche Bank AG. "The only thing I was trading off of was the revisions,'' LaScala said. "It's difficult to put a lot of capital behind this data'' from September, he said. The rally may also be limited by lighter-than-usual trading before the holiday weekend. The Bond Market Association recommended bond markets close early today, at 2 p.m. New York time, and remain shut Oct. 10 in observance of the Columbus Day holiday. Stock markets will maintain normal hours. The U.S. currency rose 12 percent against the euro and 11 percent versus the yen this year as the Fed has raised its benchmark rate six times, to 3.75 percent. The European Central Bank has kept its rate at 2 percent for two years, while the Bank of Japan has maintained rates near zero since 2001. The yield on the December federal funds futures at the Chicago Board of Trade held at 4.12 percent, indicating traders see a 78 percent chance the Fed will lift its rate to 4.25 percent by year-end after boosting the rate to 4 percent Nov. 1.

ECB Bolsters Euro
The 12-nation European currency this week has been bolstered by a more aggressive stand by the ECB on rates and inflation, rising yesterday by the most since January 2004 versus the dollar after ECB President Jean-Claude Trichet said the bank may increase interest rates "at any time'' to prevent inflation from accelerating. "A lot of people will be picking up euros at these levels,'' said Mitul Kotecha, head of currency strategy in London at Calyon, the securities unit of Credit Agricole SA. "After the hawkish comments from Trichet, people may think this is the bottom of a range'' for the euro, and "it's a good level to get in.'' The Fed last month said the U.S. economy faces only a "near-term'' setback from Hurricane Katrina, the nation's most costly natural disaster, and pledged to stick to its policy of raising rates at a "measured'' pace.

'Supportive of Dollar'
"Expectations of further rate hikes in the U.S. over the rest of the year are very supportive of the U.S. dollar,'' said John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney. "The market has already moved to price in the first 25 basis points rate hike in November, but has not yet fully priced in the second in December.'' The dollar may rise to $1.19 per euro in the coming three months, he said. The dollar has risen or fallen an average of 1.1 cents per euro on the day of the monthly jobs report in the past 12 months, according to data compiled by Bloomberg. St. Louis Fed Bank President William Poole on Oct. 4 described as "reasonable'' futures-market predictions that rates will rise another half-percentage point this year. UBS AG, the world's second-biggest currency trader, yesterday raised its forecast for the dollar versus the euro and the yen as it expects the Fed to continue to express concern about inflation. The bank expects the dollar to trade at $1.22 against the euro in one month and $1.24 in three months. UBS forecast it will trade at 112 yen in one month and 108 yen in three months.