The dollar fell versus the euro, headed for a third weekly decline, before a U.S. report that may show employers cut jobs at a slower pace, sapping demand for the currency as a refuge from the economic slump. The euro gained for a second day versus the yen on speculation that European Central Bank’s decision yesterday to buy covered bonds will help to speed up a recovery in the region. The yen slid this week versus all 16 major currencies and touched a seven-month low against Australia’s dollar as optimism the recession is easing spurred buying of higher- yielding assets. “The dollar is hurt by a return of risk appetite,” said Audrey Childe-Freeman, senior currency strategist in London at Brown Brothers Harriman Ltd. “It’s still a bumpy road ahead, but it would appear that global economic indicators are suggesting the economy may have reached its low. That won’t bode well for a safe-haven currency like the dollar.” The dollar traded at $1.3399 per euro at 10:57 a.m. in London, after falling 0.4 percent yesterday and touching $1.3470, the weakest level since April 6. The greenback dropped 1.1 percent against the euro this week, headed for its longest run of declines this year. The European currency traded at 133.14 yen, from 132.71 yesterday, when it gained 1.2 percent. The dollar was at 99.36 yen, from 99.12. Stocks Advance European and Asian stocks rose and government bonds fell after Federal Reserve Chairman Ben S. Bernanke said yesterday the results of the government’s review of the banking industry “should provide considerable comfort.” The Nikkei 225 Stock Average added 0.5 percent, Europe’s Dow Jones Stoxx 600 Index advanced 1.5 percent and Standard & Poor’s 500 Index futures expiring in June climbed 1 percent. Australia’s dollar strengthened to 75.12 yen, extending this week’s gains to 3.8 percent. New Zealand’s dollar was 4.6 percent higher versus the yen in the period, trading at 59.09. U.S. employers eliminated 600,000 jobs last month, compared with 663,000 in March, according to the median forecast of 70 economists surveyed by Bloomberg. The Labor Department report is due at 8:30 a.m. in Washington. Australia’s unemployment rate fell last month for the first time since August, while New Zealand’s first-quarter jobless rate rose to 5 percent, compared with economists’ forecasts for a 5.5 percent increase. The yen headed for the second weekly decline versus the Australian dollar after volatility implied by one-month options on Australia’s currency versus Japan’s declined to the lowest level since September. ‘Gradual Recovery’ Toyota Motor Corp., the world’s largest automaker, forecast a second straight annual loss as the global recession curbs demand for new cars and a stronger yen erodes the value of dwindling overseas sales. Australia’s central bank said the lowest interest rates in five decades will spur a “gradual” recovery next year. The economy will shrink 1.25 percent in the 12 months through June, before gaining 0.25 percent in the year to June 2010, the bank said. Australia’s borrowing benchmark is 3 percent, compared with 0.1 percent in Japan and as low as zero in the U.S. “The bearish trend of the yen against the Australian dollar will continue,” Masafumi Yamamoto, head of foreign- exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo and a former Bank of Japan currency trader, wrote in a report today. Implied volatility on one-month Australian dollar options against the yen reached as low as 25.64 percent today, the least since Sept. 30. Australia’s dollar bought 75.07 yen, after touching 75.75 yesterday, the strongest since Oct. 7. ECB Rate Cut Lower volatility indicates a lesser risk of exchange-rate fluctuations that can erode profit on so-called carry trades. In carry trades, investors get funds in a nation with relatively low borrowing costs and invest in one with higher interest rates. ECB policy makers yesterday cut the key interest rate to a record 1 percent and unveiled plans to buy 60 billion euros ($81 billion) in covered bonds. President Jean-Claude Trichet described the bank’s plan to buy debt as “credit easing” at a press conference in Frankfurt. Details of the purchases will be announced next month. ECB executive board member Lorenzo Bini Smaghi said the region’s economy is showing “signs of improvement,” Italy’s Radiocor reported, citing comments made in a television interview with Canale 5. Covered Bonds “Steps taken by the ECB weren’t full-fledged quantitative easing, so it’s positive for the euro,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Yields in the euro zone are rising, which will likely lure investors and will probably lead to buying of the euro,” which may advance to 133.60 yen and $1.3470 today, he said. The difference in yields between 10-year German bunds and similar-dated Japanese notes was at 1.98 percentage points today, from 1.81 percentage points at the beginning of the week, according to data compiled by Bloomberg. The gap is likely to exceed 2 percentage points next year, according to a weighted Bloomberg News survey of economists and analysts. Covered bonds, known as Pfandbriefe in Germany, are secured by property loans or lending to public-sector institutions and differ from mortgage-backed securities because they’re also supported by a borrower’s pledge to pay. They have traditionally been considered among the safest corporate bonds available, allowing lenders to pay less interest.

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