Dollar Advances as U.S. Loses Fewer Jobs Than Some Forecast

By Ye Xie and Whitney Kisling

Jan. 9 (Bloomberg) -- The dollar rose against the euro after a U.S. government report showed payrolls shrank last month less than some economists forecast.

The euro was poised for a weekly decline versus the dollar and the biggest drop against the pound since its debut in 1999 on speculation the European Central Bank will cut its main refinancing rate next week to the lowest level since 2005. South Korea’s won fell after the central bank reduced its target rate to a record low and said the economy is deteriorating.

“We are short of a complete disaster,” said Jens Nordvig, a senior currency strategist in New York at Goldman Sachs Group Inc. “So there’s some relaxation that the worst hasn’t come through.”

The U.S. currency appreciated 1.1 percent to $1.3561 per euro at 9:14 a.m. in New York, from $1.3702 yesterday. The dollar traded at 91.21 yen, compared with 91.20. The euro fell 1 percent to 123.68 yen from 124.96.

U.S. payrolls dropped by 524,000 last month after declining by 584,000 in November, the Labor Department said today in Washington. The median forecast of the 72 economists surveyed by Bloomberg News was for a reduction of 525,000. The unemployment rate increased to 7.2 percent.

The total number of people receiving unemployment benefits rose in the week ended Dec. 27 to 4.6 million, the most since 1982, the Labor Department said yesterday.

The dollar fell 19 percent against the yen in 2008, the biggest drop in more than two decades, on speculation the Federal Reserve’s reduction of its target lending rate to a range of zero to 0.25 percent will undermine demand for the greenback among investors.

Euro Versus Pound

The euro fell as much as 1.1 percent to 89.06 pence versus the pound and was headed for a 6.9 percent weekly decline after reaching the record high of 98.029 on Dec. 30.

The ECB will cut its 2.5 percent target rate by a half- percentage point on Jan. 15, according to the median forecast of 32 economists surveyed by Bloomberg News. Policy makers delivered the biggest reduction in the bank’s 10-year history in December, lowering the target by 0.75 percentage point.

South Korea’s won fell 0.7 percent to 1,342.75 versus the dollar after the central bank reduced its target lending rate by a half-percentage point to a record low of 2.5 percent and said the economy is “deteriorating rapidly.”

President Barack Obama warned in a speech yesterday that the U.S. risks sinking deeper into an economic crisis without an infusion of government spending and a cut in tax rates and urged Congress to act quickly on a stimulus package of about $775 billion.

He said the plan would widen the federal budget deficit, which the Congressional Budget Office forecasts will hit $1.18 trillion this year.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net

Last Updated: January 9, 2009 09:18 EST