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Dollar Weakens as Payrolls Below Forecast Fuel Growth Concern

Feb. 7 (Bloomberg) -- The dollar fell after U.S. employers added fewer jobs than forecast last month, raising speculation the Federal Reserve may slow the pace of reduction in bond purchases amid signs of uneven economic growth.

The greenback erased gains as payrolls grew by 113,000 in December, versus the median forecast in a Bloomberg News survey for a 180,000 advance, and the unemployment rate fell to 6.6. The euro fell earlier as Germany’s top court questioned a rescue plan for debt crisis-hit euro-area nations and asked Europe’s highest judges to rule on its legality.

“A bad number would spook the markets significantly as it would indicate that the benefits of QE are unraveling rapidly,” Sebastien Galy, senior foreign-exchange strategist at Societe Generale SA, wrote in an e-mail before the report. “Dollar-yen remains the more vulnerable currency in the Group of 10 to a negative surprise.”

The dollar fell 0.4 percent to 101.66 yen at 8:31 a.m. New York time. It declined 0.3 percent to $1.3629 per euro.

The dollar suffered the biggest two-day loss against the yen since August after data on Jan. 10 showed December payrolls gained by the smallest since in three years. The greenback added 2 percent to 102.67 yen in the two days ended Jan. 13.

Fed Policy

The Fed said Jan. 29 it would further trim its monthly bond purchases to $65 billion starting in February from $75 billion in January, based on optimism that economic growth is improving.

The job market indicators have been “mixed but on balance showed further improvement,” the Federal Open Market Committee said in a statement after the two-day meeting. “The unemployment rate declined but remains elevated,” the FOMC said.

The euro weakened as the European Court of Justice has been asked to rule on a claim that the region’s central bank overstepped its powers in announcing the Outright Monetary Transactions in September 2012. The still-unused program allows the ECB to buy bonds of indebted nations and has been credited with helping to calm record borrowing costs.

The shared currency rose the most in two weeks yesterday after the ECB refrained after its policy meeting from introducing additional stimulus that tends to debase the currency. Central bank President Mario Draghi said officials could take action to counter low inflation when more data is available. The ECB will publish quarterly macro-economic forecasts next month.

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