By Ye Xie and Candice Zachariahs
Aug. 1 (Bloomberg) -- The dollar rose to a one-month high against the euro as a government report showed employers in the U.S. eliminated fewer jobs last month than analysts forecast.
The euro weakened as German retail sales dropped in June more than twice as much as forecast, undermining the case for the European Central Bank to boost interest rates again this year. The pound headed for its biggest weekly drop since mid- June as U.K. manufacturing shrank by the most in a decade.
``The pace of job erosion is slowing down,'' said Mike Moran, a senior currency strategist at Standard Chartered in New York. ``Europe is catching up with where the U.S. has been. It does put a floor under the dollar.''
The dollar appreciated 0.3 percent to $1.5551 per euro at 4:26 p.m. in New York, from $1.5603 yesterday. It touched $1.5515, the strongest since July 24. The dollar dropped 0.2 percent to 107.70 yen, from 107.91. The euro decreased 0.5 percent to 167.49 yen, from 168.39.
The U.S. currency posted a 1 percent weekly gain versus the euro, the biggest increase since mid-June, and a decrease of 0.1 percent against the yen. Japan's currency advanced 1.1 percent versus the euro, the biggest weekly gain since early May.
The pound declined as much as 0.6 percent to $1.9727, the lowest level since July 10, as an index of British manufacturing dropped in July to the weakest since December 1998. Sterling depreciated 0.8 percent versus the dollar this week.
`Good Sell'
``Sterling at current levels is a good sell,'' said Meg Browne, a senior currency strategist at Brown Brothers Harriman & Co. in New York, in an interview on Bloomberg Television.
The Australian and New Zealand dollars fell against all of the other major currencies this week after a report in Australia showed manufacturing contracted in July and a New Zealand survey indicated yesterday that business confidence dropped last month for the first time in four months.
Traders have raised bets that the central banks of both countries will lower borrowing costs, reducing the appeal of the currencies to international investors.
The Aussie dropped 1.4 percent to 92.91 U.S. cents and was down 2.9 percent this week. New Zealand's currency, known as the kiwi, decreased 0.8 percent to 72.82 U.S. cents. It fell 1.8 percent this week.
Payroll Report
U.S. payrolls shrank in July for a seventh straight month, decreasing by 51,000, matching the previous month's decline, the Labor Department said today in Washington. The median forecast of 79 economists surveyed by Bloomberg News was for a reduction of 75,000. The unemployment rate rose to 5.7 percent, the highest since March 2004, from 5.5 percent.
``The market will start to focus on the rise of the unemployment rate, which could cause concerns about the weakness of the economy,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago. ``I'm not ready to call a bottom in the dollar just yet.''
The U.S. currency may weaken to $1.58 per euro in the next couple of weeks, said Reid.
The dollar pared its gain versus the euro as crude oil rose as much as 3.6 percent to $128.60 a barrel. Israeli Deputy Prime Minister Shaul Mofaz said Iran, OPEC's second-largest oil producer, is on a path toward a ``major breakthrough'' in its nuclear program.
The euro-dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations based on their value changes. A reading of 1 would mean they moved in lockstep.
German Retail
The 15-nation euro fell earlier today versus the dollar as German's Federal Statistics Office in Wiesbaden said retail sales, adjusted for inflation and seasonal swings, dropped 1.4 percent in June after increasing 0.5 percent in the prior month. The median forecast of 29 economists surveyed by Bloomberg News was for a decrease of 0.5 percent.
ECB President Jean-Claude Trichet said on July 3 that he had ``no bias'' or ``pre-commitment'' after policy makers increased the main refinancing rate to 4.25 percent.
``We're seeing the European numbers coming up very soft, so that will put pressure on the ECB not to do anything until the end of the year,'' said Alan Kabbani, a senior currency trader at Wachovia Corp. in Charlotte, North Carolina. ``I'm thinking a little bit more positively on the dollar.''
Japan's currency rose to the two-week high of 166.69 against the euro as slowing global growth prompted traders to pare holdings of higher-yielding assets funded in Japan.
The yen advanced to a two-month high of 100.07 per Australian dollar and a four-month high of 77.90 per New Zealand dollar on speculation investors reduced carry trades in which they get funds in countries with low borrowing costs and invest where returns are higher. The target lending rate of 0.5 percent in Japan compares with 7.25 percent in Australia and 8 percent in New Zealand.
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Candice Zachariahs in New York at czachariahs1@bloomberg.net.
Last Updated: August 1, 2008 16:31 EDT
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