DOLLAR MAY EXTEND DECLINE AGAINST EURO BEFORE PAYROLL REPORT

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Dollar May Extend Decline Against Euro Before Payroll Report

By Ye Xie

Aug. 1 (Bloomberg) -- The dollar may extend its decline against the euro before a U.S. government report forecast to show employers cut payrolls in July for a seventh month.

The currency dropped yesterday as the U.S. economy grew less than forecast in the second quarter and initial jobless claims rose last week to a five-year high. The dollar pared its losses as crude oil prices fell, deepening the decline last month to 11 percent.

NOTE: TOM FITZPATRICK IS A WELL RESPECTED PERSONALITY IN THE TRADE CURRENCY INDUSTRY.

``The deterioration of the labor market is accelerating,'' said Tom Fitzpatrick, global head of currency strategy at Citigroup Global Markets Inc. in New York. ``I don't think we've seen the highs in the euro-dollar yet.''

The dollar traded at $1.5601 per euro at 6:24 a.m. in Tokyo, after dropping 0.2 percent yesterday. It reached a record low of $1.6038 on July 15. The dollar was at 107.84 yen, following a 0.2 percent decline. The euro was little changed at 168.26 yen.

South Africa's rand rose as much as 1.2 percent yesterday to 7.3014 against the dollar, the highest since February, after a report showed the country's trade deficit unexpectedly narrowed in June. The rand increased 6 percent in July, for the best performance among the world's major currencies.

Crude oil fell 2.2 percent to $124.05 a barrel on the New York Mercantile Exchange yesterday. 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.

`Quite Heavy'

NOTE: ERATIC CHANGES IN PRICING OF CRUDE OIL GIVES ERATIC EFFECTS.

``Oil looks quite heavy, and commodities seem to be in a longer-term downward trend,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``It lent some support to the dollar.''

Some companies also bought the dollar at month-end to balance their books, according to Osborne.

Futures contracts on the Chicago Board of Trade showed yesterday a 30 percent chance that the Fed will raise its 2 percent target rate for overnight loans between banks by at least a quarter-percentage point by Sept. 16, down from 38 percent odds on July 30. Most traders expect policy makers to hold borrowing costs unchanged when they next meet Aug. 5.

U.S. gross domestic product increased at an annual rate of 1.9 percent in the second quarter, the Commerce Department reported yesterday. The median forecast of 79 economists surveyed by Bloomberg News was for an advance of 2.3 percent. The report also showed that a recession may have begun in the final three months of 2007, as GDP was revised to indicate a contraction in that period.

Jobless Claims

Initial jobless claims rose to 448,000 in the week ended July 26, from a revised 404,000 the prior week, the Labor Department said yesterday. The total number of initial filings last week was the highest since April 2003.

The U.S. currency touched a one-month high against the euro on July 30 after an ADP Employer Services report showed companies unexpectedly added jobs last month.

``The dollar's rally was built on a shaky foundation,'' said Stephen Malyon, co-head of currency strategy at Scotia Capital Inc. in Toronto. ``There's more downside risk to growth.''

U.S. non-farm payrolls dropped by 75,000 last month, following a decline of 62,000 in June, according to the median forecast of 79 economists surveyed by Bloomberg News. The Labor Department's report, which includes government hiring, is scheduled to be released at 8:30 a.m. in Washington.

Dollar in July

The greenback strengthened 1 percent against the euro and 1.6 percent versus the yen in July on speculation the U.S. growth slowdown is spreading to other developed nations. Reports last week showed German business confidence declined and European manufacturing and services contracted.

``The dollar bounce is nothing short of stunning,'' said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. ``Economies elsewhere are showing fresh signs of deterioration.''

Turkey's lira advanced to a six-month high yesterday after the Constitutional Court's decision on July 30 to reject a call by prosecutors to ban the ruling party, which is seeking to introduce Islamic law. The lira climbed as much as 2.4 percent to 1.1555 per dollar, its strongest since Jan. 15. It gained 5.4 percent versus the dollar in July.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net
Last Updated: July 31, 2008 17:28 EDT


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