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 weekly decline versus the dollar and the biggest drop since its introduction in 1999 against the pound as traders bet the European Central Bank will cut its key interest rate on Jan. 15 to the lowest level since 2005. South Korea’s won fell after the central bank reduced its rate to a record low and said the economy is “deteriorating rapidly.” “The market is set up for a much weaker report than the consensus,” said Adam Cole, London-based global head of currency strategy at Royal Bank of Canada. “In the past few months, weaker numbers tended to be dollar positive as they raised risk aversion. My feeling is that we’ve gone back into trading in a conventional way. That means a knee-jerk reaction to weaker numbers would be to sell the dollar.” The dollar traded at 91.01 yen as of 6:42 a.m. in New York, versus 91.83 at the end of last week. It touched 90.85 yesterday, the lowest level since Jan. 2. The U.S. currency rose to $1.3665 per euro. The greenback will trade at about $1.20 by the end of March, according to Royal Bank of Canada. Non-farm payrolls fell by 525,000 in December, according to the median estimate of 73 economists in a Bloomberg survey. Then lowest forecast is for a loss of 750,000 jobs and the highest 350,000, the poll showed. The Labor Department will release the data at 8:30 a.m. in Washington. 700,000 Trigger “For dollar weakness a drop in excess of 700,000 is probably needed, while for dollar strength any fall significantly better than the revised November out-turn,” Steven Pearson, a London-based currency strategist at Merrill, wrote in a note received today. Europe’s single currency fell as low as 89.58 British pence, from 90.06 pence yesterday. It’s down 6.3 percent this week versus the pound. The euro was at 124.39 yen today, from 124.96, and touched 124.11 yesterday, the lowest level since Dec. 22. Korea’s won fell against the yen and the dollar as the central bank cut its benchmark rate by a half-percentage point to 2.5 percent. The currency declined to 1,343 per dollar, from 1,333 yesterday. BOE Rate Cut The pound rose to $1.5245, from $1.5216 yesterday, when it reached $1.5373, the highest level 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 headed for a weekly loss. The 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 81.702, from 81.536 yesterday. The euro snapped two days of gains against the dollar after Bundesbank President Axel Weber signaled that Germany’s central bank may have to revise down its 2009 growth forecast for the nation. Weber made the comment in the text of a speech delivered in Cologne late yesterday. “We are still looking for a 50 basis-point European central Bank cut to 2 percent next week,” said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. “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. ECB Cuts 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. 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. ‘Renewed Dollar Tumble’ The dollar may weaken on speculation investors will funnel funds into higher-yielding assets financed in the U.S., according to Deutsche Bank AG. “The combination of extremely lax monetary policy, various deficit issues and the one capital inflow -- Treasuries -- running out of steam just as Europeans start to repatriate all point to a renewed dollar tumble,” Deutsche Bank analysts including Henrik Gullberg in London wrote in a research report dated yesterday.

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