By Lukanyo Mnyanda and Stanley White Nov. 7 (Bloomberg) -- The dollar fell against the yen and the euro 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 the U.K.'s benchmark rate of 3 percent. A Labor Department report today may show U.S. unemployment rose to a five-year high as the global economic slowdown worsened. ``Growth is pretty much the market's concern at the moment and the jobs data might add to that picture,'' said Ian Stannard, a senior currency strategist in London at BNP Paribas SA, the most accurate forecaster in a 2007 Bloomberg survey. ``We've been looking for the dollar to correct lower.'' The dollar fell to 97.22 yen at 7 a.m. in New York, from 97.75 yesterday in New York. It weakened to $1.2758 per euro from $1.2715. The euro was little changed at 124.29 yen. Against the pound, the dollar declined to $1.5730 from $1.5627. The dollar may fall to $1.31 versus the euro in the next week and rebound to $1.17 by year-end, Stannard said. The dollar fell 0.3 percent against the euro this week. The pound lost 2.2 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 1 percent against the yen this week after the European Central Bank lowered 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 show an 84 percent chance the Fed will cut its 1 percent target lending rate for overnight bank loans 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 1,328.65 per dollar, paring its weekly decline to 3 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 Australian and New Zealand dollars declined 33 percent against the yen this year as the threat of a global recession reduced demand for the countries' commodity exports. The Baltic Dry Index, a measure of shipping costs for bulk freight, slumped more than 90 percent since Jan. 2. The pound declined this week versus the dollar as 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. ``We're bearish on the euro as the move yesterday shows how out of touch the ECB is,'' said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, which counts FTSE-listed companies and high net worth individuals among its clients. ``What is Trichet waiting for?'' 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 31 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 reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net.

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