The dollar rose against the euro and the yen on speculation President-elect Barack Obama’s fiscal stimulus will help the U.S. economy recover from the recession. The dollar climbed to the highest level in almost three weeks against the European single currency and gained against 13 of its 16 most actively traded counterparts monitored by Bloomberg. Obama crafted a package of infrastructure spending and tax cuts to create three million jobs. The euro fell after European Central Bank Vice President Lucas Papademos said further interest-rate reductions may be necessary should inflation keep slowing. “Obama’s stimulus package came in at a higher end of expectations, and is skewed more towards tax cuts than has been expected,” said Adam Cole, London-based head of global currency strategy at Royal Bank of Canada Ltd., the nation’s largest lender. “That’s positive for dollar sentiment. But moves might be exaggerated a bit because trading volumes in the market are still quite thin.” The dollar strengthened to $1.3676 per euro at 10:24 a.m. in London, from $1.3921 on Jan. 2. One dollar bought 93.12 yen, from 91.83 yen. The U.S. currency will strengthen to 98 yen by the end of June, according to Cole. It traded at $1.4522 to the British pound, from $1.4548. The euro slid against 15 of 16 major currencies on speculation that interest rates in the euro region will need to drop further. It weakened to 94.25 pence per pound, from 95.69 pence. “There’s a strong view in the market that the euro will suffer into 2009,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank in London. “The ECB is behind the curve on rate cuts and will be forced to play catch-up. It will pay the price for concern over non-existent inflation.” U.S. Policy Obama, who takes office on Jan. 20, plans to seek Congressional approval in coming weeks for an economic stimulus plan that may total $775 billion, according to a transition official and Democratic aides. Tax cuts may account for 40 percent of the package, they said. Policy makers should enact “substantial” fiscal stimulus to stop the U.S. economy deteriorating further, Federal Reserve Bank of San Francisco President Janet Yellen said yesterday. Last month, the U.S. central bank reduced the target for the federal funds rate, which banks charge one another for overnight loans, to a range from zero to 0.25 percent for the first time. The central bank is also shifting its focus to the amount and type of debt it buys. “Dollar strength has more room to run,” said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co. Ltd., a unit of Japan’s largest brokerage. “There’s a sense of euphoria surrounding Obama’s efforts to boost the economy. This will keep the dollar supported.” The dollar may rise to 94 yen and appreciate to $1.35 versus the euro this week, he said. The yen fell after gains in stocks eroded demand for carry trades in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. The MSCI Asia Pacific Index of regional shares rose 1.1 percent, while the Dow Jones Stoxx 600 Index in Europe increased 1.4 percent.

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