Dollar Continues its Fall for a Second Day Ahead of the Jobs Report

>Dollar falls against the Yen and Euro

March 6 (Bloomberg) — The dollar fell against the euro and the yen before a government report that may show the U.S. lost the most jobs last month since 1949.

The U.S. currency weakened for a second day against the yen before the Labor Department report, which may show the unemployment rate rose in February to a 25-year high as payrolls fell by 650,000. The euro strengthened on speculation European investors will repatriate profits before the end of the first quarter on March 31.

“There’s going to be a horrific employment report in the U.S.,” said Lee Hardman, a London-based currency strategist at Bank of Tokyo-Mitsubishi Ltd. “There are signs now in the market that the dollar is becoming more vulnerable.”

The dollar dropped to $1.2688 per euro as of 9:33 a.m. in London from $1.2540 in New York yesterday. The decline was the biggest since Feb. 24. The U.S. currency slid to 97.26 yen from 98.07 yen. The euro rose to 123.38 per yen from 123.00 yesterday, and traded at 89.20 British pence from 88.82.

The unemployment rate probably surged to 7.9 percent, according to the median estimates in a Bloomberg News survey. The Labor Department data are scheduled for release at 8:30 a.m. in Washington.

The U.S. currency’s decline versus the euro was stoked by speculation European investors will bring home overseas earnings as they close their books at the end of this quarter, said Yuji Saito, head of the foreign-exchange group at Societe Generale SA in Tokyo.

‘Buying Back Currency’

“European investors appear to be repatriating funds from abroad ahead of the quarter-end,” said Saito. “They’re buying back their own currency.”

The economy of the 16 euro nations is shrinking faster than the European Central Bank expected just three months ago as the global slowdown curbs export demand and companies cut back on workers. ECB President Jean-Claude Trichet said yesterday policy makers cut their economic forecasts and expect inflation to stay “well below” the bank’s 2 percent ceiling this year.

The yen declined against 12 of the 16 major currencies on concern Japan’s political turmoil will make it harder for the government to cope with a deepening recession. Japanese prosecutors suspect a group headed by Trade Minister Toshihiro Nikai of taking illegal political donations, local media reported today.

“Political uncertainty seems to be mounting and the Japanese economy isn’t showing any signs at all of improving,” said Ryohei Muramatsu, Tokyo-based manager of Group Treasury Asia at Commerzbank AG, Germany’s second-largest lender. “The yen is likely to be sold” to 124.10 per euro today, he said.

‘Worse’ Data

Japan’s 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.

Japan will record a current-account deficit of 15.3 billion yen ($157 million) in January, the first shortfall in 13 years, according to a Bloomberg survey of economists before the March 9 report. The world’s second-biggest economy shrank an annualized 12.7 percent last quarter, the government said Feb. 16, the biggest contraction since the 1974 oil crisis.

The yen will fall to 102 against the dollar as risk sentiment improves and a weakening domestic economy prompts investors to buy assets outside Japan, Barclays Capital said.

“The deteriorating state of both the economy and the political situation appears likely to add momentum to negative sentiment about Japanese assets,” Toru Umemoto and Yuki Sakasai, Tokyo-based strategists at Barclays, wrote in a research note yesterday. “The Japanese current account is declining, outward foreign direct investment increasing and Japanese investors continue to purchase foreign securities.”

Trade minister Nikai told reporters in Tokyo today he had no knowledge of an investigation into one of his political groups over suspected campaign donations and had done nothing wrong. Prosecutors suspect a group he headed received donations from Nishimatsu Construction Co., the Sankei newspaper reported, without saying where it got the information.