By Stanley White and Daniel Kruger
Nov. 6 (Bloomberg) -- The euro fell for a second day against the dollar on speculation the European Central Bank will follow an expected interest-rate cut today with further reductions to revive the region's shrinking economy.
The 15-nation currency also declined against the yen as economists forecast the ECB will lower its main refinancing rate by a half-percentage point to 3.25 percent, after a similar- sized reduction less than a month ago. Britain's pound also weakened on speculation the Bank of England will bring down borrowing costs when it meets today.
``You can't buy the euro,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The ECB may cut rates well into next year, and that will cause the currency to fall.''
The euro declined 0.6 percent to $1.2877 at 10:10 a.m. in Tokyo, after falling 0.2 percent yesterday. It bought 126.29 yen from 126.89 yen. The dollar traded at 98.13 yen from 97.94. The pound fell 0.5 percent to $1.5827.
The ECB will announce its decision at 1:45 p.m. in Frankfurt today and the bank's president, Jean-Claude Trichet, will hold a press conference 45 minutes later. The ECB reduced the target to 3.75 percent from 4.25 percent on Oct. 8, joining the Fed, the Bank of England, the Bank of Canada and the Swiss National Bank in coordinated reductions.
``The market will view the action as a step to restore confidence and to mitigate the economic fallout from the crisis,'' said Todd Elmer, currency strategist at Citigroup Global Markets in New York.
U.S. Economy
The dollar was little changed against the yen after companies in the U.S. cut an estimated 157,000 jobs in October, the most in almost six years, a private report based on payroll data showed. The drop was larger than forecast and followed a revised 26,000 decrease in September that was bigger than previously estimated, ADP Employer Services said.
Total 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 Labor Department's report is due tomorrow.
President-elect Barack Obama has advocated a second fiscal stimulus package to help boost the economy. About three weeks ago, as financial markets reeled and the crises deepened, Obama increased the proposed cost of his ``middle-class rescue plan'' to $175 billion from $115 billion.
`Very Bleak'
U.S. stocks dropped yesterday on concern the world's largest economy will worsen even as Obama moves to stimulate growth. The Standard & Poor's 500 Index slumped 5.3 percent yesterday, the most following a presidential election, after data showed U.S. services industries contracted by the most on record in October.
``Everything is very, very bleak,'' said Firas Askari, head currency trader at BMO Nesbitt Burns in Toronto. ``It's hard for me to be a lover of the U.S. dollar. You're putting your grandkids into hock.''
The pound declined for a second day against the dollar and yen as traders bet that U.K. policy makers will lower their benchmark interest rate by 75 basis points to 3.75 percent, according to a Credit Suisse Group AG index of probability based on overnight indexed swap rates. Fifteen of 60 economists in a Bloomberg survey say the Bank of England will reduce rates by that amount or more, with the rest predicting a half-point cut.
Japan's currency strengthened to 66.34 against the Australian dollar from 66.73 and to 9.9670 per South African rand from 10.0239 on speculation the drop in stocks will discourage carry trades, in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.3 percent target lending rate compares with 5.25 percent in Australia and 12 percent in South Africa.
`Repatriation Flows'
The yen dropped against the dollar and the euro on Nov. 4 as U.S. stocks rallied the most on a presidential Election Day since the New York Stock Exchange first opened for trading on a voting day in 1984.
Any yen weakness ``is likely to prove both limited and short-lived as the onset of potentially the worst global recession since the early 1980s continues to drive further dollar- and yen-supportive repatriation flows,'' Lee Hardman, a currency strategist in London at Bank of Tokyo-Mitsubishi Ltd., wrote in a client note.
The yen and the dollar posted the biggest monthly gains versus the euro in October since it debuted in 1999 as signs of a global recession led investors to seek safety in the Japanese and U.S. currencies.
Futures on the Chicago Board of Trade showed an 98 percent chance yesterday that the Fed will cut the 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 on Nov. 4.
To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net
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