Dollar Rises Versus Euro on Signs Economic Rebound Is Faltering

July 4 -- The dollar rose against the euro this week as speculation the economic recovery is faltering boosted demand for the safety of the U.S. currency.

The Dollar Index, which tracks the currency against six major U.S. trading partners, advanced to near the highest in a week after a report showed U.S. employers cut more jobs last month than economists forecast. The pound had its first weekly loss in a month after a report showed U.K. service industries were little changed in June as the recession persisted.

“We had a disappointing jobs figure and data has generally tended to underwhelm,” said Steven Barrow, head of Group of 10 currency research in London at Standard Bank Plc, who forecast the dollar may gain to $1.38 per euro next week. “Risk aversion is increasing a little bit and that’s helped the dollar.”

The dollar advanced 0.5 percent to $1.3984 per euro as of 2:08 p.m. in New York yesterday, from $1.4056 at the end of last week. It reached $1.3929 yesterday, the strongest level since June 25. The yen was at 134.27 per euro, from 133.85 a week earlier. The U.S. currency rose 0.9 percent to 96.00 yen.

The pound was at $1.6328, for a weekly decline of 1.2 percent. The U.K. currency declined 0.3 percent in the week to 156.77 yen, after reaching the weakest level since June 25.

Job Losses

U.S. employers cut 467,000 jobs in June, after losing a revised 322,000 positions the previous month, the Labor Department said in Washington on June 2. The unemployment rate increased to 9.5 percent from 9.4 percent. Europe’s service industry contracted at a faster pace in June, London-based Markit Economics said yesterday.

“As feared, the poor jobs report prompted a sizeable paring of risk appetite across foreign-exchange markets,” UniCredit Markets & Investment Banking analysts including Roberto Mialich in Milan wrote in a client note yesterday. “The euro was obviously dragged down.”

The dollar was also buoyed this week after a Chinese Foreign Ministry official said he was “not aware” of a plan to discuss a new reserve currency at next week’s Group of Eight meeting. China hoped that “as the main reserve currency, the exchange rate of the U.S. dollar will be stable,” China’s Vice Foreign Minister He Yafei told reporters in Beijing July 2.

The U.S. currency strengthened most against the New Zealand dollar and the pound in the week as European stock markets declined. Europe’s Dow Jones Stoxx 600 fell for a third consecutive week, its longest losing run since the period through March 6.

Dollar Index

The Dollar Index increased 0.3 percent to 80.403, bringing its gain this week to 0.7 percent. It reached 80.578 on July 2, the highest level since June 25. The index rebounded from 78.334 on June 2, the weakest level this year.

The pound weakened against 15 of the 16 most-actively traded currencies this week. Growth in U.K. service industries slowed in June, giving the Bank of England more reason to keep its key interest rate at a record low of 0.5 percent. Gross domestic product shrank in the first quarter by the most since 1958, the Office for National Statistics said June 30.

An index based on a U.K. survey of about 700 service companies by the Chartered Institute of Purchasing and Supply fell to 51.6 in June, from 51.7 in May, a report showed yesterday.

Investors should sell the pound on speculation the central bank will expand asset purchases when it meets to set monetary policy next week, strategists led by Hans-Guenter Redeker, global head of foreign-exchange strategy at BNP Paribas SA, wrote in a client note yesterday.

Yen Falls

The yen weakened against the New Zealand dollar yesterday after Kyodo News reported Japan may consider investing about 10 percent of its public pension-reserve funds in assets with “high risks and high returns.”

Japan’s pension-reserve balance was 123 trillion yen ($1.28 trillion) as of March 2009, Kyodo said, citing Health Minister Yoichi Masuzoe.

“If the government wants to buy more foreign bonds for its public pension reserve funds, that’s yen negative,” said Masaki Fukui, a senior market economist in Tokyo at Mizuho Corporate Bank Ltd., Japan’s second-largest publicly traded lender.

The losses cut the yen’s weekly gain against the New Zealand dollar to 1.6 percent. Japan’s currency climbed 0.2 percent against the Australian dollar this week to 76.72 yen.