By Ye Xie Oct. 8 (Bloomberg) -- The dollar declined the most against the euro in more than two weeks after global central banks made joint cuts in borrowing costs. Foreign-exchange volatility implied by dollar-euro options rose to the highest since the 15-nation currency's 1999 debut on concern the credit crisis will deepen. ``This is very good for markets at this moment,'' said Geoffrey Yu, London-based foreign-exchange strategist at UBS AG. ``The dollar might sell off a bit because it has been considered a safe haven.'' The dollar dropped 0.7 percent to $1.3679 per euro at 7:46 a.m. in New York, from $1.3588 yesterday. The U.S. currency fell 0.9 percent to 100.53 yen, from 101.47. The euro declined 0.3 percent to 137.53 yen, from 137.89. The Federal Reserve reduced its target lending rate by a half-percentage point to 1.5 percent, the central bank in a statement. The European Central Bank and the central banks of the U.K., Canada, Sweden and Switzerland are also reducing rates, the Fed said. Separately, China's central bank lowered its key one-year lending rate. ``The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability,'' according to a joint statement by the central banks. ``Some easing of global monetary conditions is therefore warranted.'' Bernanke's Comment Fed Chairman Ben S. Bernanke said yesterday that the Fed ``will need to consider whether the current stance of policy remains appropriate.'' Before his comments in a speech in Washington, the U.S. central bank said it would set up a special vehicle to buy commercial paper and help revive the corporate- debt market. Implied volatility on one-month euro-dollar options reached 20.11 percent, an all-time high. Implied volatility on one-month dollar-yen options soared to 25.42 percent, the highest since October 1998. Finance ministers and central bankers from the Group of Seven nations will meet in Washington Oct. 10 to discuss the deepening financial crisis. Measures to stabilize global stock markets will be on the agenda, according to a Japanese official who briefed reporters on condition of anonymity before the central banks' announcement. The G-7 comprises Canada, France, Germany, Italy, Japan, the U.K. and the U.S. The Bank of England's rate dropped to 4.5 percent, while Sweden's rate declined to 4.25 percent. China cut interest rates for the second time in three weeks, reducing the main rate to 6.93 percent. The Fed also cut its rate on direct loans to banks, the so- called discount rate, by a half point to 1.75 percent. To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

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