The dollar headed for its first weekly loss against the yen in three weeks before a U.S. payrolls report that may show the economy lost jobs every month in 2008 and the unemployment rate rose to a 16-year high. The euro was set for a second weekly decline versus the British pound and the greenback as traders predict the European Central Bank will lower interest rates on Jan. 15 to the lowest level since 2005. South Korea’s won trimmed gains after the central bank reduced borrowing costs to a record low and said the economy is “deteriorating rapidly.” “There’s a high likelihood that the jobs data will be very bad,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe General SA, France’s second-largest bank by market value. “It’s a reason to sell the dollar.” The dollar traded at 91.23 yen at 1:45 p.m. in Tokyo, versus 91.83 at the end of last week. It touched 90.85 yesterday, the lowest since Jan. 2. It rose to $1.3655 per euro from $1.3702, and was poised for a 2 percent weekly gain. The U.S. currency may drop to 90 yen and $1.38 per euro today, Saito said. Europe’s single currency fell to 89.91 pence from 90.06 pence yesterday. It declined to 124.58 yen from 124.96, and touched 124.11 yesterday, the lowest level since Dec. 22. Against the yen, Australia’s dollar climbed 0.6 percent to 64.64 and New Zealand’s dollar rose 0.4 percent to 54.10 from late in Asia yesterday. Korea’s won pared an advance of as much as 1.2 percent after the central bank cut its benchmark rate by a half-point to 2.5 percent. The currency traded at 1,324.80 per dollar from 1,332.75 yesterday. BOE Rate Cut The pound declined to $1.5187 from $1.5216 yesterday, when it reached $1.5373, the highest since Dec. 18, after the Bank of England lowered its benchmark interest rate by a half-percentage point to 1.5 percent. “There was some money-market speculation that they could go for 75 or even 100 basis points,” Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney, said in a Bloomberg Television interview. “Hence, we did see sterling rise immediately after the decision.” The ICE’s Dollar Index may head for a weekly loss as the U.S. unemployment rate likely jumped in December to 7 percent, the highest level since 1993, according to the median forecast of 70 analysts surveyed by Bloomberg News. Non-farm payrolls fell by 525,000, according to the survey. The Labor Department will release the data at 8:30 a.m. in Washington. The Dollar Index, which tracks the U.S. currency against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, rose to 81.830 from 81.536 yesterday. ‘May be Worse’ Bundesbank President Axel Weber yesterday signaled that Germany’s central bank may have to revise down its 2009 growth forecast for the nation. The euro fell, snapping two days of gains. “We are still looking for a 50 basis-point ECB cut to 2 percent next week,” said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. “The economy may be worse than what the ECB is expecting. The bias for the euro is to weaken” to $1.3600 today, Lee said. The Bundesbank in December forecast Europe’s largest economy would contract 0.8 percent in 2009 before expanding 1.2 percent in 2010. With the global economic crisis eroding export demand, German companies are paring output and cutting jobs. U.S. Mortgages The ECB on Dec. 4 lowered its benchmark rate by 75 basis points to 2.5 percent and investors expect another cut of at least 50 basis points next week, Eonia forward contracts show. A basis point is 0.01 percentage point. Citigroup Inc.’s agreement to support U.S. legislation that would allow bankruptcy courts to cut mortgage rates for at-risk borrowers is “negative” for the yen, according to Commerzbank AG in Tokyo. Citigroup endorsed the bill after Senate Banking Committee Chairman Christopher Dodd, and Senators Charles Schumer of New York and Richard Durbin of Illinois, agreed to limit the legislation to existing mortgages, rather than future loans. “Citigroup’s agreement is important and a plus for market sentiment,” said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank. Risk Appetite Japan’s yen may pare its 0.7 percent advance against the dollar and 2.5 percent gain versus the euro this week on speculation a rebound in global stocks since the start of 2009 will revive so-called carry trades. The Standard & Poor’s 500 Index of U.S. equities gained 0.7 percent this year. “As risk appetite has improved and equity markets have strengthened, there’s been a wall of money that has been flowing out to various risky assets,” Mitul Kotecha, Hong Kong-based head of global currency strategy at Calyon, the investment- banking unit of French bank Credit Agricole SA, said in an interview with Bloomberg Television today. In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency market moves erase those profits. Benchmark interest rates are 4.25 percent in Australia and 5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S.

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