By Stanley White
Nov. 7 (Bloomberg) -- The dollar fell for a third day against the yen on speculation a government report will show the U.S. economy lost the most jobs since 2003, bolstering the case for the Federal Reserve to lower interest rates.
The U.S. currency also declined versus the British pound as futures traders bet the Fed will cut borrowing costs by half a percentage point to 0.5 percent at its next meeting, compared with a U.K. benchmark rate of 3 percent. A Labor Department report today may also show the U.S. unemployment rate rose to a five-year high as the global economic downturn deepened.
``People are trimming bets on dollar gains before the payrolls data,'' said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Japan's second-largest publicly traded lender. ``The focus is on fundamentals and there are serious doubts about the U.S. economy and corporate earnings.''
The dollar fell to 97.54 yen at 7:12 a.m. in London from 97.75 late yesterday in New York. Against the pound, it declined to $1.5659 from $1.5627. It weakened to $1.2755 per euro from $1.2715. The euro traded at 124.43 yen from 124.29 yen. The dollar may fall to $1.2830 versus the euro today, Ito said.
The dollar fell 0.2 percent against the euro this week. The pound fell 2.5 percent against the U.S. currency over the five days as the Bank of England yesterday reduced its main rate to the lowest level since 1955. The euro fell 0.6 percent against the yen this week following the European Central Bank's decision to lower rates by half a point to 3.25 percent.
Payrolls Data
U.S. payrolls fell by 200,000 last month, and the unemployment rate rose to a five-year high of 6.3 percent, according to the median forecast of economists surveyed by Bloomberg News. The report from the Labor Department is due at 8:30 a.m. in Washington. The economy contracted 0.3 percent in the third quarter, the biggest decline since 2001.
``Sentiment is already pretty grim as far as the labor market is concerned,'' said Samarjit Shankar, director of strategy for the global markets group in Boston at Bank of New York Mellon, the world's largest custodial bank, with more than $23 trillion in assets under administration. ``It will take a huge surprise on the upside to provide some support for U.S. dollar sentiment.''
Futures on the Chicago Board of Trade showed a 90 percent chance the Fed will cut its 1 percent target lending rate for overnight lending between banks by a half-percentage point at its Dec. 16 meeting, compared with 55 percent odds a week ago.
Korean Won
The South Korean won rose 0.2 percent to 1,328.00 per dollar, paring its weekly decline to 2.8 percent, as local stocks rebounded following the Bank of Korea's decision to cut its benchmark rate to 4 percent, the third reduction in a month.
The pound headed for a weekly decline after the Bank of England lowered its benchmark rate by 1.5 percentage points to 3 percent yesterday, the biggest cut since 1992, as the seizure in credit markets left Britain on the edge of its first recession since 1991. Signs the economy is faltering prompted a 50 billion pound ($78.4 billion) bank rescue package from the government.
``The implications are that the pound will remain soft,'' Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader, wrote in a research note today. ``The BOE has come out with an unusually large rate cut and maintained an extremely dovish stance.''
Trichet on `Turmoil'
ECB President Jean-Claude Trichet said policy makers may lower rates further after cutting the main refinancing rate by a half-percentage point yesterday to 3.25 percent. The rate- setting Governing Council discussed a reduction of 0.75 percentage point to support Europe's economy, Trichet said yesterday at a press conference in Frankfurt after the meeting.
``The intensification and broadening of the financial turmoil is likely to damp global and euro-area demand for a rather protracted period of time,'' he said.
Economists predict the ECB will lower borrowing costs at the most aggressive pace in its 10-year history, reducing its target rate to 2.5 percent by April as growth falters.
``These rate cuts highlight how serious the problems are that Europe and the U.K. are facing,'' said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly listed bank. ``The trend for the euro is to go lower. It may be some time before we see the pound form a bottom.''
The euro may fall to $1.25 and sterling may drop to $1.5280 in coming days, he said.
Strong Yen
Japan will benefit from a strong yen because it will hold down prices for raw materials, said Eisuke Sakakibara, formerly the nation's top currency official.
``I still believe a strong yen is in the national interest of Japan, particularly in this situation when raw material prices will increase,'' Sakakibara said in an interview with Bloomberg Television in Singapore yesterday. The yen may rise to as high as 80 per dollar as carry trades unwind, said Sakakibara, who was dubbed ``Mr. Yen'' during his 1997-1999 tenure at the Finance Ministry because of his influence over currency markets.
The yen's 15 percent gain against the dollar this year and 32 percent advance versus the euro prompted Japan's government to announce last month it may buy or sell currencies to influence exchange rates.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net.
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