Dollar Falls Versus Euro on Jobs Data After Four Days of Gains

May 4 (Bloomberg) -- The dollar fell against the euro after four days of gains and dropped from a two-month high versus the yen after a government report showed U.S. employers added the fewest jobs in more than two years.

The U.S. currency also weakened to an eight-month low against the Canadian dollar and declined versus the pound and Swiss franc on speculation the Labor Department data will increase the likelihood of a cut in borrowing costs by the Federal Reserve. Reports earlier this week showed pending home sales unexpectedly declined and inflation moderated in March.

``Growth and interest rate expectations are conspiring against the dollar,'' said Michael Woolfolk, senior currency strategist in New York at Bank of New York. ``A lower dollar is still the trend.''

The dollar fell 0.32 percent to $1.3593 per euro at 10:54 a.m. in New York. It touched a record low of $1.3681 on April 27. The dollar dropped 0.22 percent to 120.19 yen, falling from today and yesterday's high of 120.47. That was the strongest since Feb. 27, when stocks tumbled in a global rout.

The U.S. currency weakened 0.07 percent to 90.35 U.S. cents against its Canadian counterpart and touched 90.64 cents, the lowest since Sept. 1. The dollar declined 0.26 percent to $1.9919 per pound and 0.3 percent to 1.2106 Swiss francs.

The Australian dollar tumbled against all 16 major currencies today after the country's central bank cut its inflation forecast, weakening the case for increased borrowing costs. The currency dropped 0.42 percent to 82.05 U.S. cents.

Jobless Rate Rises

The U.S. unemployment rate rose to 4.5 percent from the five-year low of 4.4 percent as employers added 88,000 non-farm jobs in April, following a revised 177,000 the previous month, the Labor Department reported today in Washington. The median forecast of 85 economists surveyed by Bloomberg News was for a gain of 100,000.

``The market already factored in a lower number,'' said Brian Dolan, research director at Forex.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey, which has about $250 million funds under management. ``People shorted the dollar before the report.'' A short is a bet on a currency's decline.

Yields on interest-rate futures fell following the payroll report, indicating traders raised bets the Fed will lower borrowing costs this year.

The yield on Eurodollar futures for December declined to 5.075 percent from a two-week high of 5.105 percent yesterday. The contracts' value at settlement is based on the interest rate on three-month bank deposits, which is influenced by the federal funds rate target.

Benchmark Rates

The Fed has kept its target rate for overnight lending between banks at 5.25 percent since lifting it to that level in June. The European Central Bank has raised its rate seven times since November 2005 to 3.75 percent. The Bank of England's rate is 5.25 percent.

The payroll report pared the dollar's weekly gain against the euro, the first since March. The U.S. currency has risen 0.48 percent against the 13-country currency so far this week on reports showing strength in manufacturing and services.

The dollar may extend its decline next week on speculation the European Central Bank and the Bank of England will raise borrowing costs while the Fed holds them steady. All three central banks are scheduled to meet to set rates next week.

``We have an ECB that remains hawkish,'' said Simon Derrick, chief currency strategist in London at Bank of New York. ``The underlying force that continues to drive the euro higher is interest-rate differentials.''

ECB Outlook

UBS AG raised its forecast for the euro to $1.40 by the end of the year, saying it expects the ECB to increase its key rate to 4.75 percent by mid-2008. UBS's previous forecast was for the rate to peak at 4.25 percent this year.

The dollar has lost almost 3 percent against the euro and about 1.7 percent versus the pound since the start of the year.

The euro began its advance earlier today after a report showing a boost in European sales reinforced expectations the ECB will raise rates further this year.

``The business outlook continues to suggest that activity will at the very least remain firm over the coming months and provides a friendly backdrop for the expected ECB rate hike in June,'' said Stuart Bennett, a senior economist in London at Calyon.