By Stanley White Dec. 15 (Bloomberg) -- The dollar fell to an eight-week low against the euro and weakened versus the yen on speculation the Federal Reserve will lower interest rates and the U.S. will bail out the auto industry with funds meant to shore up banks. The greenback approached a 13-year low against the Japanese currency after U.S. President George W. Bush’s administration said it may use the Troubled Asset Relief Program to prevent General Motors Corp. and Chrysler LLC from “collapsing.” The dollar also weakened against the British pound as economists predict the U.S. central bank will cuts its benchmark rate for the seventh time this year at a two-day meeting ending tomorrow. “There’s no meaningful obstacle to further declines in the dollar against the yen,” said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust and Banking Co., a unit of Japan’s largest brokerage. “Diverting government funds intended for the financial sector to carmakers may mean there’s simply less money to go around.” The dollar fell to $1.3459 per euro as of 7:49 a.m. in London from $1.3369 on Dec. 12, after touching an eight-week low of $1.3499. The dollar slid to 91.01 yen from 91.21, after dropping to 88.53 yen on Dec. 12, the weakest level since August 1995. The euro rose to 122.45 yen from 121.83. The dollar may fall to 90 yen today, Amikura said. Against the British pound, the dollar fell to $1.5041 from $1.4944. The greenback declined to 66.78 cents per Australian dollar from 66.44 cents in New York on Dec. 12. It dropped to 55.15 cents versus the New Zealand dollar from 54.68 cents. Annual Performance The dollar fell 19 percent against the yen this year, the most since 1987, as almost $990 billion of credit-market losses sparked a seizure in money markets. The yen advanced 61 percent against the Australian dollar and 80 percent against the South African rand in 2008 on speculation the global recession prompted investors to unwind carry trades, in which they get funds in a country with low borrowing costs and buy higher-yielding assets. Japan’s 0.3 percent target lending rate is the lowest among major economies. Futures on the Chicago Board of Trade showed on Dec. 12 a 72 percent chance the Fed will trim its 1 percent target lending rate to 0.25 percent at its meeting this week, compared with zero odds a month ago. “The dollar is going to remain under pressure until we get the outcome of the Fed meeting,” said Tony Morriss, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “It’s no longer the safe haven that it was previously. The Japanese yen and now the euro are beneficiaries of that.” Net Longs Futures traders increased bets the yen will gain against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop against the dollar -- so-called net longs -- was 43,259 on Dec. 9, compared with 42,903 a week earlier. Citigroup Inc., Goldman Sachs Group Inc., BNP Paribas SA and Bank of America Corp. predict further weakness in the dollar after a four-month, 24 percent rally. Last week was the first time in almost a month that consensus estimates for the dollar against the euro through 2009 fell, according to a Bloomberg News survey. Dollar Index The U.S. currency weakened 6 percent measured by the trade- weighted Dollar Index from a two-year high on Nov. 21 after strengthening between July and November as investors bought the greenback to flee riskier assets and repay dollar-denominated loans from lenders reining in credit. Since peaking three weeks ago, the dollar fell against all 16 of the most-widely traded currencies, according to data compiled by Bloomberg. U.S. policy makers are flooding the world with an extra $8.5 trillion through 23 different plans designed to bail out the financial system and pump up the economy. The decline shows the increased supply of money may be overwhelming investors just as the government steps up debt sales, the trade and budget deficits grow and de-leveraging by investors slows. “The dollar will go to new lows as the U.S. attacks its currency,” said John Taylor, chairman of New York-based FX Concepts Inc., which manages about $14.5 billion of currencies. Japan may intervene in the currency market for the first time in five years to slow the yen’s advance against the dollar and other currencies, Nikkei English News reported on Dec. 13, citing finance officials it didn’t identify. Any government move would be unilateral, Nikkei said, citing a senior finance- ministry official. Unilateral Action “While intervention is possible, any unilateral action wouldn’t be enough to stop the yen appreciating,” 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. “People are more focused on the state of the U.S. economy and monetary policy there.” The yen may advance to 90 per dollar today, he said. Japan last intervened on its own when it sold a record 20.4 trillion yen ($224 billion) in 2003 and 14.8 trillion yen in the first quarter of 2004, when the yen rose as high as 103.42 per dollar. Central banks intervene when they buy or sell currencies to influence exchange rates. The yen maintained its gains after the Bank of Japan said today its Tankan index of business sentiment plunged the most in 34 years. The Tankan index of confidence among large makers of cars and electronics slid to minus 24 from minus 3, the BOJ said. A negative number means pessimists outnumber optimists. Economists expected minus 23, according to a Bloomberg survey. To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net.

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