By Kim-Mai Cutler and Stanley White Dec. 15 (Bloomberg) -- The dollar fell to an eight-week low against the euro and dropped versus the yen on speculation the Federal Reserve will cut interest rates and the U.S. will bail out General Motors Corp. and Chrysler LLC. The greenback approached a 13-year low against the Japanese currency after U.S. President George W. Bush said yesterday he may use funds meant to shore up banks to keep the automakers out of bankruptcy. The Fed is forecast by economists to cut its benchmark rate tomorrow. “There is dollar weakness in anticipation of this week’s meeting, where it’s widely expected that the Fed will cut the benchmark rate,” said Lee Hardman, a London-based foreign- exchange strategist at Bank of Tokyo-Mitsubishi. The dollar declined 0.8 percent to $1.3472 per euro at 7:34 a.m. in New York, from $1.3369 on Dec. 12, after touching an eight-week low of $1.3499. The dollar slid 0.5 percent to 90.78 yen from 91.21, after reaching 88.53 yen on Dec. 12, the weakest level since August 1995. The euro rose 0.4 percent to 122.25 yen from 121.83. The yen advanced 62 percent against the Australian dollar and 83 percent versus the South African rand in 2008 on speculation the global recession will prompt 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. The dollar gained 8.2 percent against the euro this year as almost $990 billion of credit-market losses sparked a seizure in money markets, encouraging investors to buy the greenback to flee riskier assets and repay dollar-denominated loans from lenders reining in credit. Drop in Libor The cost of borrowing in dollars over three months, or the London interbank offered rate, fell for a fifth day today in a sign that short-term funding pressures and dollar demand may be easing. The rate for three-month loans decreased to 1.87 percent, according to British Bankers’ Association data. “More and more confidence is seeping back into the market,” said Martin McMahon, a Zurich-based foreign-exchange strategist at Credit Suisse Group AG. “This is more from policy measures and the frequency of them, rather than the economic data. Dollar strength had been a defensive play, and now that’s unwinding a bit.” President Bush, traveling on Air Force One from Iraq to Afghanistan yesterday, said he “signaled” his administration is considering using money from the $700 billion Troubled Asset Relief Program to help GM and Chrysler. Bush said he’s “not quite ready” to announce any rescue plan. Fed Rate Outlook Futures on the Chicago Board of Trade showed a 70 percent chance the Fed will trim its 1 percent target lending rate to 0.25 percent at its meeting tomorrow, 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.” 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. Dollar Weakness 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. The U.S. currency weakened 5.9 percent measured by the trade-weighted Dollar Index from a two-year high on Nov. 21 after strengthening from July to November. Since peaking three weeks ago, the dollar fell against all 16 of the most widely traded currencies tracked by Bloomberg. 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 Dec. 13, citing finance officials it didn’t identify. Any government move would be unilateral, said Nikkei, citing a senior finance- ministry official. “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. To contact the reporters on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net

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