Dollar, Yen Fall as Pace of Job Losses Reduces Safety Demand

By Ye Xie and Liz Capo McCormick

March 6 (Bloomberg) -- The dollar and yen fell against all of their major counterparts as the pace of U.S. job losses slowed in February, reducing demand for the currencies as a refuge from global economic turmoil.
Japan’s currency was headed for its sixth weekly decline against the dollar, the longest losing streak since June 2007, on concern the recession in the world’s second-largest economy deepened. A gauge of the dollar against the currencies of six major U.S. trading partners fell this week from the highest level in almost three years.

“The big positioning in the market is now long dollars,” said Steven Englander, chief U.S. currency strategist at Barclays Capital Inc. in New York. “It made people a bit nervous that there was going to be a shift in sentiment for the dollar. That makes the dollar vulnerable to weaken.” A long position is a bet a currency will appreciate.

The dollar declined 0.8 percent to $1.2639 per euro at 4 p.m. in New York, from $1.2540 yesterday. It reached $1.2754, the weakest level since Feb. 26. The yen depreciated 0.2 percent to 98.28 per dollar from 98.07 and lost 1 percent to 124.20 versus the euro from 123.
China’s yuan was little changed at 6.84 per dollar as the central bank reiterated its pledge to keep the currency stable as exports slid. The yuan fell 0.24 percent against the dollar this year after a 7 percent gain in 2008.

The U.S. currency advanced 0.2 percent versus the euro this week, the fourth straight increase. The yen dropped 0.5 percent against the 16-nation currency. The dollar rose 0.7 percent versus the yen in its sixth week of gains.

Dollar Index 

The Dollar Index, which the ICE uses to track the greenback’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell 0.7 percent to 88.512 today. The gauge reached 89.624 on March 4, the highest level since April 2006, as investors took refuge.
“Safe-haven flows to the dollar are starting to fade,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “The dollar is struggling.”

Employers eliminated 651,000 jobs last month, following a reduction of 655,000 in January, the Labor Department reported today in Washington. The median forecast of 80 economists surveyed by Bloomberg News was for a decrease of 650,000. The jobless rate increased to 8.1 percent, the highest level since December 1983, from 7.6 percent in the previous month.

“Markets were bracing themselves for a bigger reduction in payrolls,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “More risk- aversion positions have to be unwound.”

Haven Status 

The dollar may extend its decline versus the euro as the U.S. economic slowdown erodes the greenback’s status as a haven currency, according to Matt Esteve, a foreign-exchange trader at Tempus Consulting Inc. in Washington.

“At this point, considering we have had month after month after month of awful economic news out of the world’s largest economy, it’s pretty foreboding and scary for investors,” Esteve said.

The economy of the 16 euro nations is shrinking faster than the European Central Bank expected three months ago as the global slowdown curbs export demand and companies cut back on workers. Policy makers reduced their economic forecasts and expected inflation to stay “well below” the bank’s 2 percent ceiling this year, ECB President Jean-Claude Trichet said yesterday. He lowered the main refinancing rate to 1.5 percent, the lowest level since the euro debuted in 1999.

Yen Versus Won

The yen fell 1.3 percent to 6.34 South Korean won and 1.2 percent to 84.78 versus the Swiss franc today as Bank of Japan deputy governor Hirohide Yamaguchi said in an interview that the central bank may need to expand its purchases of corporate debt to prevent a credit shortage from deepening the recession.
Japan’s currency lost 6.3 percent against the dollar since Feb. 16, when the Japanese government said the economy shrank an annualized 12.7 percent last quarter, the biggest contraction since the 1974 oil crisis.
The economic data has been “much worse” than expected, and the government will need to revise its gross domestic product forecast soon, Finance Minister Kaoru Yosano said today.

The yen will weaken to 102 against the dollar as risk sentiment improves and a weakening domestic economy prompts investors to buy assets outside Japan, Toru Umemoto and Yuki Sakasai, Tokyo-based strategists at Barclays Capital Plc, wrote in a research note. They revised last month’s forecast for the currency to strengthen to 86.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Liz Capo McCormick in New York at emccormick7@bloomberg.net
Last Updated: March 6, 2009 16:12 EST