Dollar Is Near 5-Week Low Before U.S. Labor, Services Reports

By Stanley White

Dec. 3 (Bloomberg) -- The dollar traded near a five-week low against the yen before reports that will probably show U.S. companies accelerated job cuts and a contraction in services deepened as the world’s largest economy battles with a recession.

The greenback also declined against the Philippine peso and the Singapore dollar after General Motors Corp. told U.S. lawmakers it will run out of money this month unless Congress gives it $4 billion. The British pound fell against the dollar on speculation the Bank of England will lower interest rates at a meeting tomorrow.

“There is a risk that the dollar will go lower,” said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Japan’s second- largest publicly traded lender. “Disappointing economic data would highlight the extent of the U.S. recession and undermine confidence in buying the dollar.”

The dollar traded at 93.18 yen as of 10:42 a.m. in Tokyo from 93.18 late yesterday in New York, when it declined to 92.63, the lowest since Oct. 28. The euro bought $1.2701 from $1.2714. The euro was quoted at 118.35 yen from 118.44 yen. The pound dropped to $1.4886 from $1.4920. The dollar may fall to 92.50 yen today, Ito said.

The U.S. currency declined 0.2 percent against the Singapore dollar to S$1.5286. It also fell 0.2 percent to 49.40 Philippine pesos.

U.S. Economy

ADP Employer Services will report at 8:15 a.m. New York time that companies cut 205,000 jobs last month, following a reduction of 157,000 in October, according to a Bloomberg News survey of economists. Payrolls including government employees shrank by 325,000 workers in November, the biggest one-month drop since the 2001 terrorist attacks, a separate survey showed before the Labor Department’s Dec. 5 report.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the U.S. economy, fell to 42, the lowest level since records began in 1997, according to a Bloomberg survey before the report at 10 a.m. New York time today. Readings below 50 indicate a contraction.

The U.S. economy entered a recession in December 2007, the first since 2001, The National Bureau of Economic Research said on Dec. 1.

Ten-year Treasuries yielded 2.70 percent today, near 2.65 percent on Dec. 1, the lowest since the Fed’s daily records started in 1962. The Federal Reserve may use less conventional policies, such as buying Treasuries, because there is limited room to lower the target lending rate from the current 1 percent, Chairman Ben S. Bernanke said on Dec. 1.

Low Yields

“The market is not willing to drive the dollar much higher right now,” said Sharada Selvanathan, a currency strategist at BNP Paribas SA in Hong Kong. “One of the reasons for that is we’re seeing U.S. yields collapsing quite sharply each day and on the yields perspective, the market is a little cautious in going long dollar right now.”

The dollar will trade in a range from $1.25 to $1.31 per euro into the end of the year, while it will weaken to 91 yen, she said. Going long is a bet a currency will rise.

GM asked U.S. lawmakers for $12 billion in loans and an additional credit line of $6 billion, as it tries to shrink domestic employment by 34 percent, close plants and emphasize only four of eight current U.S. brands, according to a statement yesterday on its Web site. Ford Motor Co. asked Congress for a credit line of as much as $9 billion, while Chrysler LLC sought $7 billion in loans as U.S. carmakers struggle with declining sales due to the recession.

U.S. Automakers

“I’m wary of the U.S. automakers because they seem to be asking for a lot of money and a resolution may not come quickly,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The fact that the U.S. government has to consider supporting these major companies is unsettling for the dollar.”

The U.S. currency may fall to 92.50 yen today, he said.

Foreign-exchange funds had their biggest monthly returns in October since 2003 as investors sold higher-yielding assets and bought the U.S. dollar, Parker Global Strategies LLC said yesterday. Currency funds gained 2.53 percent, according to the Stamford, Connecticut-based firm, whose Parker FX Index tracks 68 firms managing more than $36 billion in assets.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
Last Updated: December 2, 2008 21:14 EST