The dollar fell to a two-month low against the euro as a report showed U.S. companies shed more jobs last month than economists forecast, reducing bets that the Federal Reserve will increase borrowing costs next month.
The U.S. currency also weakened as economists predicted that the European Central Bank will raise its main refinancing rate by a quarter-percentage point tomorrow while the U.S. Labor Department will say employers eliminated jobs in June for a sixth straight month.
``The pace of job losses has speeded up,'' said David Powell, currency strategist in New York at Bank of America Corp. ``It points to the downside risk of tomorrow's number. The dollar is likely to hit $1.60 once again over the coming days, if not tomorrow.''
Futures on the Chicago Board of Trade show a 20 percent chance the Fed will raise its 2 percent target rate for overnight lending between banks by a quarter-percentage point at its meeting on Aug. 5, compared with 25 percent odds yesterday.
The European currency rose earlier after a newspaper reported that ECB President Jean-Claude Trichet said there's a risk of inflation ``exploding'' if central banks aren't decisive and the European Union said producer prices rose by a record 7.1 percent in May.
The Labor Department will report tomorrow that U.S. employers eliminated 60,000 jobs including government positions last month, according to the median forecast of 79 economists. The dollar weakened 1.2 percent against the euro and 1 percent versus the yen on June 6, when the government reported that the U.S. lost 49,000 jobs in May.