NEW YORK (Bloomberg) — The dollar rose against the yen as evidence of a strong job market reduced speculation the Federal Reserve will cut borrowing costs in the third quarter.The US currency rebounded from a two-year low against the euro to finish the week little changed after a government report showed employers added more jobs last month than economists forecast. German manufacturing unexpectedly rose for a fourth straight month, suggesting the European Central Bank may adopt a more assertive stance regarding inflation.

“The strong US data continues to rattle the market expecting a slowing economy,” said Jeff Gladstein, global head of foreign-exchange trading in Wilton, Connecticut, at AIG Financial Products. “The dollar is still going to trend lower, but it will be a gradual decline.”

The dollar rose to 119.32 yen from 117.83 on March 30. The US currency traded at $1.3372 versus the euro, compared with $1.3354 on March 30. It dropped to $1.3442 on April 5, the lowest in two years.

Interest rate futures suggest a 22 percent likelihood the Fed will cut its target rate for overnight lending between banks to 5 percent at its August 6-7 meeting, down from 50 percent odds on March 30. As recently as March 13, the market was certain of an August rate cut. The Fed has kept its target rate for overnight lending between banks at 5.25 percent since August of last year.

St. Louis Federal Reserve Bank President William Poole, speaking in New York on April 2, said he would face a “high hurdle” for favouring interest-rate cuts if inflation stays near the current pace. He reiterated that his goal for annual inflation is 1.5 percent, plus or minus 0.5 percentage point.

An inflation measure closely tracked by the Federal Reserve gained in February, the Commerce Department reported March 30. The price gauge, tied to spending patterns and excluding food and energy costs, rose 2.4 percent from February 2006 after rising 2.2 percent in January from a year earlier.

The U.S. Labour Department in Washington reported yesterday that employers added 180,000 non-farm jobs in March, 50,000 more than the median forecast of 75 economists surveyed by Bloomberg News, following a revised gain of 113,000 the previous month. The jobless rate unexpectedly fell to 4.4 percent from 4.5 percent.

The dollar weakened against the euro and yen on April 4 as reports showed US services industries grew at the slowest pace in four years in March and factory orders rose in February less than economists forecast.

“An extra 50,000 employees won’t change the overall picture of a weak dollar,” said Camilla Sutton, a currency strategist in Toronto at Scotia Capital Inc., who forecasts the dollar to fall to $1.38 per euro by the end of the year.

The euro strengthened 2.23 percent this week to 159.60 yen, touching an all-time high of 159.69 yen yesterday. German industrial production and factory orders advanced in February, the Economy and Technology Ministry in Berlin reported this week.

The Frankfurt-based ECB increased its benchmark rate to 3.75 percent last month. The central bank is forecast to hold the rate steady at its meeting next week, according to all of the 43 economists surveyed by Bloomberg.