The euro fell against the dollar before data that may show the jobless rate rose and retail sales declined in the countries sharing the currency, bolstering speculation the European Central Bank will lower interest rates. The euro also traded near a three-week low versus the yen as derivatives showed investors are betting the ECB will lower its key rate by at least a quarter of a percentage point next week. The Australian dollar weakened against the greenback and the yen after homebuilding approvals in the country slumped. “Disappointing economic data exposed the euro to selling,” said Takeshi Tokita, vice president of foreign-exchange sales in Tokyo at Mizuho Corporate Bank, a unit of Japan’s second-largest publicly traded lender. “The market is pricing in a rate cut and there is interest in selling the euro.” The euro fell to $1.3617 as of 1:42 p.m. in Tokyo from $1.3644 late yesterday in New York. It bought 125.98 yen from 126.42 yen. The dollar traded at 92.52 yen from 92.65 yen. The pound weakened to $1.5054 from $1.5095. The euro may decline to $1.3520 today, Tokita said. The Australian dollar declined to 70.47 U.S. cents from 71.27 U.S. cents late yesterday in New York. The number of permits granted to build or renovate homes fell 12.8 percent in November, the steepest drop in six years. The Aussie, as the currency is known, also slid after oil prices plunged the most in seven years. Crude is Australia’s fourth most valuable export. South Korea’s won depreciated to 1,328.75 per dollar from 1,292.70 as foreign investors sold more of the country’s shares than they bought for the first time in a week. The Malaysian ringgit touched a three-week low of 3.5340 before data that may show manufacturing slumped. European Economy The European unemployment rate increased to 7.8 percent in November from 7.7 percent the previous month, according to a Bloomberg News survey of economists before the release of the data at 11 a.m. in Luxembourg today. A separate report tomorrow will show retail sales in the countries using the euro fell 1.7 percent in November from a year earlier after a 2.1 percent decline in the previous month, according to another survey. The ECB cut interest rates by 1.75 percentage points since early October to 2.5 percent as the region entered a recession. Policy makers will lower the main rate by at least a quarter of a percentage point at the next meeting on Jan. 15, according to a Credit Suisse Group AG gauge based on overnight index swaps. Gains in the dollar may be limited before U.S. government data forecast to show unemployment increased, reinforcing investor expectations for a protracted recession. U.S. nonfarm payrolls fell 500,000 in December, bringing last year’s decline to 2.4 million, the most since 1945, according to a Bloomberg survey before Labor Department figures due tomorrow. The unemployment rate likely jumped to 7 percent, the highest level since 1993. Labor Market Companies in the U.S. slashed 693,000 jobs in December, the most since records began in 2001, ADP Employer Services said yesterday. The median forecast in a Bloomberg News survey of 24 economists was for a reduction of 495,000. “The dollar is at risk of falling further,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The labor market is an indication that it will be a long time before the U.S. economy improves.” The dollar may weaken to 91.80 yen and $1.3690 per euro today, he said. The British currency slid 23 percent against the euro last year, its biggest annual drop since the common currency’s debut, as U.K. policy makers cut borrowing costs by more than the ECB with the British economy entering its first recession in 17 years. U.K. Recession The Bank of England will lower its benchmark rate by half a percentage point to an all-time low of 1.5 percent when it announces a policy decision today at 12 noon in London, according to a Bloomberg survey. “We see room for sterling to weaken some more,” Brian Kim, a Stamford, Connecticut-based currency strategist at UBS AG wrote in a research note yesterday. “Our economists are looking for a one percentage point cut. Easing inflationary pressures and slowing economic activity give the BOE the room to cut.” The pound may fall to $1.45 in three months, UBS forecast. Foreign-exchange funds gained in the first 11 months of 2008 as volatility increased in the currency market, according to Parker Global Strategies LLC. The Parker FX Index, which tracks 63 firms managing more than $33 billion in assets, advanced 4.38 percent last year through November, the Stamford, Connecticut- based firm said in a statement yesterday. Volatility on major currencies doubled to 20 percent by the end of November, from 9.4 percent on July 31, according to an index compiled by JPMorgan Chase & Co. It was at 19.69 percent yesterday. Currency Volatility The dollar slumped to a 13-year low of 87.14 yen last year as $1 trillion in losses on U.S. mortgage-related securities worldwide prompted Japanese investors to shun overseas assets and the Federal Reserve lowered its benchmark rate to a target range of zero to 0.25 percent for the first time. “I expect volatility to remain high this year,” said Takeharu Miki, currency options manager at Bank of Tokyo- Mitsubishi UFJ Ltd., a unit of Japan’s biggest publicly listed lender. “People are unsure of the safety of the derivatives that banks hold. The dollar may go lower against the yen on repatriation.” Investors should buy dollar put options allowing them to sell the currency at 85 yen and which expire in three months, he said.

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