May 31 (Bloomberg) — The dollar may drop against the euro for a fourth week on the belief that the U.S. currency’s 5.4 percent advance from a record low already reflects forecasts for employment growth and higher interest rates, a Bloomberg survey indicates.
Sixty-seven percent of the 82 traders, investors and strategists polled Friday from Tokyo to New York advised selling the dollar versus the euro, double the number of a week earlier. For a second week, 61 percent said they would sell the dollar against the yen.
The dollar, which fell to an all-time low of $1.2930 on Feb. 18, has strengthened to as much as $1.1761 on expectations the Federal Reserve will raise its target rate next month. After the biggest two-month gain in jobs growth since 2000, figures for May need to be “shockingly good” for the dollar to extend its gain, said Tsutomu Soma, a currency trader at Okasan Securities Co.
“Hurdles for a further rally have been raised too high,” said Soma, 43, who has been trading currencies and derivatives for 15 years in Tokyo. “The creation of 200,000 jobs is never bad, but at this point won’t be enough to pump extra steam into the dollar.”
On Friday, the Labor Department will probably say employers hired fewer workers this month than in April and March. The U.S. economy added 225,000 jobs in May, based on the median forecast of economists polled by Bloomberg. The projected rise follows increases of 288,000 and 337,000 in March and April.
`Fed Story’
The U.S. currency fell 2 percent against the euro last week, to $1.2222 at 5:14 p.m. New York time Friday, and reached its weakest since April 2, according to EBS, an electronic currency dealing system. Japan’s currency rose 1.9 percent to 110.21 per dollar last week, for a second week of gains.
“Basically, the dollar’s run as far as it can with the Fed story,” said Ashley Davies, a currency strategist in Singapore at UBS AG, the largest foreign exchange trader. The bank cut its forecast for the dollar Friday against the euro, the yen and five other currencies.
July Fed fund futures yield 1.23 percent, reflecting a 92 percent chance the Fed will raise its target rate by a quarter percentage point when policy setters meet on June 30. December futures yield 2.045 percent, from 2.075 percent a week ago.
The dollar’s losses last week trimmed its gain this quarter to about 0.8 percent against the euro. The U.S. currency had benefited as Treasury yields rose more than German yields in recent weeks. Some of the yield advantage has diminished.
Diminishing Advantage
Ten-year Treasury yields have fallen about 0.25 percentage point since reaching an almost two-year high in mid-May, paring the notes’ yield premium over 10-year German government debt to 0.33 percentage point, the smallest in a month.
Last week’s retreat in yields is “undermining some support for the dollar,” said Jay Bryson, 45, a global economist in charge of currency predictions at Wachovia Corp. in Charlotte, North Carolina, who estimates the dollar may drop to $1.24 per euro this week.
“Perhaps the economy is slowing a tad,” said Bryson. “Some of the data over the last week have come out a little weaker than expected.” Wachovia tied for first place last quarter in a Bloomberg survey of the most accurate forecasts for the dollar’s value against the euro.
Survey participants made their recommendations after U.S. government reports last week showed jobless claims rose more than expected and new home sales in April fell the most in a decade.
Figures tomorrow and Thursday from the Institute for Supply Management may show growth in manufacturing and services industries slowed in May, according to the median forecast of economists polled by Bloomberg.
Trend Reversed
“It’s clear that the dollar-buying trend of the past few months has reversed,” said Minoru Shioiri, 39, senior manager of the treasury and currency division in Tokyo at Mitsubishi Securities Co., a unit of Japan’s third-biggest lender.
A 23 percent jump this year in crude oil prices is also fostering speculation the Fed won’t deviate from its pledge of “measured” increases in its target rate from 1 percent, the lowest since 1958. The European Central Bank’s rate is 2 percent.
`It’s becoming more uncertain if the Fed will really raise interest rates by 1 percent by the end of this year, which is the level the market currently has priced in,” Shioiri said.
Oil prices have risen 7 percent this month, partly on concerns about the security of supplies from the Middle East. Crude oil for July delivery rose 1.1 percent to $39.88 a barrel Friday in New York. It was a record $41.85 a barrel on May 17.
Saudi Attack
Gunmen attacked three sites in the Saudi Arabian city of Khobar on Saturday that house foreign oil companies and their workers. As many as 16 people may have been killed, Al-Arabiya television news reported. Al-Qaeda claimed responsibility for the attack in an e-mail received by Agence France-Presse.
“There’s still some room for the dollar to fight back,” said Ian Gunner, 42, head of currency research in London at Mellon Financial Corp. “If payrolls come in strong, heading into the next Fed meeting the dollar will be pretty well supported.”
Fed policy makers meet on June 30. Trading in the $1.2 trillion-a-day currency market will be less than usual today as financial markets in the U.K. and the U.S. are shut for national holidays.
Futures speculators raised bets in the past week that the euro will gain, Commodity Futures Trading Commission statistics show. Speculators held a net 18,714 euro long contracts, which gain in value as the euro rises, in the week through May 25. That position, the highest in about two months, rose from a net 13,422 euro long contracts the prior week.
Following are the results of the survey:
BUY SELL HOLD
Euro 55 13 14
Yen 50 11 21
British pound 47 17 16
Swiss franc 36 16 26
Australian dollar 48 13 18
Demand for the euro against the yen:
BUY SELL HOLD
Euro (versus yen) 20 19 29
To contact the reporter on this story:
Mark Tannenbaum in New York at mtannen@bloomberg.net