The dollar rose for a second day against the euro and the yen on expectations a government report today will show the U.S. economy added jobs for an eighth month, moving the Federal Reserve closer to raising interest rates. ``The Fed is waiting for more confirmation of job creation before hiking rates,'' said Niels Christensen, a currency strategist in Paris at Societe Generale SA. ``That would definitely mean a stronger dollar.''
Some traders also sold the yen on concern the Chinese government's efforts to slow economic growth and prevent an acceleration in inflation will curb demand for Japanese exports, said Toshi Honda, a currency strategist in London at Mizuho Corporate Bank. The Nikkei 225 Stock Average fell 1.2 percent. Against the euro, the dollar rose to $1.2045 at 9:04 a.m. in London, from $1.2083 late yesterday in New York, according to EBS, an electronic foreign-exchange dealing system. The U.S. currency appreciated to 110.59 yen, from 109.79. The dollar had its biggest gain against the euro in two weeks yesterday after weekly U.S. jobless claims dropped to the fewest since October 2000. The U.S. currency may gain to $1.1760 in the next few weeks, said Christensen at Societe Generale, which predicts non-farm payrolls grew by as much as 225,000. ``The U.S. dollar's run isn't over,'' said David Mozina, currency strategist in Sydney at ABN Amro Holding NV.
Employment Growth
American employers added 170,000 jobs last month, according to the median estimate of 75 economists surveyed by Bloomberg News. The Labor Department will release the figures at 8:30 a.m. in Washington. Factory employment may show the first gain since July 2000. Futures markets showed traders priced in a greater chance the Fed will raise its target rate from 1 percent next quarter. The yield on the September Eurodollar futures contract yesterday rose to 1.80 percent, the highest since early January, from 1.75 percent. The contract settles at the three-month London interbank offered rate, or Libor, which has averaged 0.22 percentage point more than the Fed's target the past 10 years.
Higher rates may increase the yield advantage offered by U.S. debt compared with that in Europe. U.S. 10-year note yields are about 0.36 percentage point above those on 10-year German government debt. The U.S. premium this week reached its highest since 2001, giving investors another reason to buy dollars. ``Anything weaker than a 100,000 increase would wane interest rate prospects,'' Honda said in an interview. ``We are still bearish on the dollar.''
`Too Fast'
Japan's currency also fell on concern exports, which accounted for a quarter of Japan's economic expansion in the fourth quarter, will slow. China was the destination for 12 percent of Japan's exports last year, up a third from 2002. Chinese President Hu Jintao called on local officials to rein in ``too fast'' fixed-asset investment growth, the state-run Xinhua News Agency reported on its Web site. Fed Chairman Alan Greenspan yesterday said growth in China will slow. The Nikkei has dropped 6 percent in the past five trading days. ``There is no doubt that talk about China reducing growth is raising concerns about Japan's recovery and that is negative for the yen,'' said Societe Generale's Christensen. China has told banks to curb lending for makers of cars, cement and steel to stem economic growth, which was at a 9.7 percent annual pace in the first quarter. The central bank decided to raise borrowing costs by half a percentage point, the South China Morning Post reported last week, citing unidentified bankers.
``The outlook for China is key to what is happening in Japan,'' said Toru Umemoto, financial markets analyst in Tokyo at Keio University's Global Security Research Center, which is headed by Eisuke Sakakibara, former vice finance minister for international affairs. ``The yen is going to remain under pressure until we know just what steps China is taking.'' ///www.bloomberg.com