The dollar fell against the yen, headed for a third weekly loss, before
a government report that will probably show the deepening credit crunch
contributed to the biggest drop in employment in more than five years.
The currency also fell against the euro on speculation the U.S. economy
will weaken regardless of whether lawmakers pass a bill to buy troubled
assets from banks in a vote today. The dollar retreated from the
highest in more than a year against the currencies of the U.S.'s six
major trading partners.
``The risk is that the jobs data will come in below market consensus,''
said Adam Cole, head of global currency strategy in London at Royal
Bank of Canada. ``That will put pressure on the dollar in the near
term.''
U.S. employers probably eliminated 105,000 jobs last month, after
slashing 84,000 in August, according to the median forecast of
economists surveyed by Bloomberg News. The Labor Department's report is
due at 8:30 a.m. in Washington. The unemployment rate held at a
five-year high of 6.1 percent, according to a separate survey.
``There's a high chance the dollar falls against the yen,'' Masafumi
Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of
Scotland in Tokyo and a former Bank of Japan currency trader, wrote in
a research note today. ``The market is likely to price in bad jobs
numbers and the chance of a Fed rate cut. We're in the middle of a
string of disappointing economic data.''
Futures on the Chicago Board of Trade yesterday showed a 94 percent
chance the Fed will cut its 2 percent target rate for overnight lending
between banks by a half-percentage point on Oct. 29, with the balance
of bets on a quarter-point reduction. Futures showed no chance of lower
rates a month ago.
The U.S. House of Representatives will vote on the latest version of a
$700 billion bank rescue plan at about 12:30 p.m. in Washington. The
Senate voted 74-25 on Oct. 1 in favor of legislation that links the
rescue of the financial industry to an increase in bank-deposit
insurance limits and tax breaks after the House rejected an earlier
version of the bill.
The euro was still set for a record weekly drop against the dollar
after European Central Bank President Jean-Claude Trichet said
yesterday policy makers discussed cutting the benchmark interest rate
before holding it at 4.25 percent. The 15-nation currency declined 5.1
percent versus the dollar, the biggest weekly drop since its debut in
January 1999. It fell 5.8 percent against the yen, the biggest weekly
decline since March 2000.
Investors should sell the euro at 145 yen with a target of 135 yen
after the ECB signaled it may lower borrowing costs for the first time
in five years, Morgan Stanley said.
``Growth prospects in the eurozone are dimming quickly and may force
the ECB's easing hand sooner rather than later,'' New York-based Sophia
Drossos and Yilin Nie, strategists at Morgan Stanley, wrote in a
research note yesterday.
US data sees the 1230GMT release of non-farm payrolls,
which are expected to fall 100,000 in September, as the impact of
Hurricanes Gustav and Ike impacted work conditions in the affected
regions. Educational workers should return to work in the September
data, though seasonal factors should anticipate this jump.
Manufacturing payrolls are expected to fall 40,000 in September. The
unemployment rate is expected to stay at 6.1%. Hourly earnings are
forecast to rise 0.3% in the month, while the factory workweek is
expected to stay at 33.7. Later US data sees the 1400GMT release of the ISM's non-manufacturing index, which is forecast to fall to a reading of 49.7 in September after nching above 50 in August.