The euro declined for a third day versus the dollar on speculation business sentiment in Germany slumped as credit losses spread through Europe, fueling expectations the European Central Bank will lower interest rates. The British pound approached a 23-year low versus the greenback on speculation the Bank of England will cut interest rates to zero. The yen advanced toward a seven-year high versus the euro before U.S. data that may show home sales fell and the world’s largest economy contracted the most since 1982, spurring demand for Japan’s currency as a haven. “Traders are likely to attack the euro and the pound further,” said Saburo Matsumoto, senior manager of foreign- exchange sales at Sumitomo Trust & Banking Co. in Tokyo. “Europe and the U.K. are still coming to terms with the scale of the economic problems they face. This is also supportive of gains in the yen and the dollar.” The euro fell to $1.2922 as of 1:32 p.m. in Tokyo from $1.2975 late in New York on Jan. 23, when it slid to $1.2765, the lowest in more than six weeks. The 16-nation currency traded at 115.27 yen from 115.12 yen. The euro touched 112.12 on Jan. 21, the weakest level since March 2002. The British pound weakened to $1.3640 from $1.3804. Sterling reached a 23-year low of $1.3503 on Jan. 23. The dollar bought 89.19 yen from 88.75 yen. The pound may fall to $1.35 today, Matsumoto said. U.K. Rates The pound declined to 94.75 pence per euro from 94.02. It also fell to 121.68 yen from 122.42 yen after reaching a record low of 118.85 yen on Jan. 23. BOE policy member David Blanchflower said interest rates should be at zero to 0.25 percent to aid the economy, the Sunday Times reported yesterday. The U.K. central bank will cut its 1.5 percent main rate by a half-percentage point on Feb. 5, a Credit Suisse Group AG index of derivatives showed. The U.K. government’s plan for a second bank bailout in three months has stoked concern the financial crisis is deepening. The Ifo research institute in Munich may say its business climate index, based on a survey of 7,000 executives, decreased to 81 this month from 82.6 in December, according to a Bloomberg survey. The data will be released tomorrow. A report at the end of the week may show European inflation slowed to 1.4 percent in January from a 1.6 percent gain in the previous month, according to a separate survey, increasing speculation that the ECB will lower its 2 percent benchmark rate. “European economies are having a tough time, and that will weigh on the euro,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “U.S. housing data may be an unsettling factor for currency markets and there are still concerns about the financial system, so there’s some bias for yen gains.” The euro may decline to 113.50 yen today, he said. U.S. Economy A U.S. report from the National Association of Realtors today may show purchases of previously owned U.S. homes fell 2 percent in December to a record low annual pace of 4.4 million, according to a Bloomberg News survey. New-home sales, due from the Commerce Department on Jan. 29, probably dropped 3 percent to the lowest level since 1982. U.S. gross domestic product contracted at a 5.5 percent annual rate from October through December, according to another survey before the release of the figures due Jan. 30. Federal Reserve policy makers will keep borrowing costs in a range from zero to 0.25 percent at a two-day meeting ending Jan. 28, according to a Bloomberg survey. Economists will comb through the announcement to see whether the Fed will broaden the range of assets it will purchase to unclog credit markets. Fed Meeting “There’s a chance the Fed won’t ease further at this meeting,” Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader, wrote in a research note today. “That means uncertainty about the financial system is more likely to influence currencies and support broad-based yen gains.” The yen has risen against the 16 most-active currencies this year as $1 trillion in losses on mortgage-related securities at financial institutions worldwide prompted investors to sell higher-yielding assets and pay back low-cost yen loans. Credit Suisse Group AG predicts the Swiss franc will climb 2.6 percent this quarter. BNP Paribas SA, the most accurate currency forecaster in a 2007 Bloomberg survey, and Royal Bank of Scotland Group Plc say it will rise 4 percent by mid-year -- even after Swiss National Bank Vice President Philipp Hildebrand said last week that policy makers may sell “unlimited amounts of francs” to curb the gains. Swiss Intervention “The SNB on its own can’t stop it if the market wants to push” the franc higher, said Henrik Gullberg, a strategist in London at Deutsche Bank AG, the world’s largest currency trader. The central bank is probably sending “an early signal” and won’t intervene until the franc strengthens to about 1.4000 per euro, he said. Gullberg predicts 1.4650 by mid-year. The franc surged 6.1 percent against the dollar and 10.8 percent versus the euro in 2008 as investors sought refuge from the global financial crisis. Switzerland has a trade surplus and doesn’t have to increase debt sales as much as other nations with a deficit. The franc was last quoted at 1.1631 per dollar from 1.1542 and 1.5032 versus the euro from 1.4962. Zurich-based SNB hasn’t intervened in foreign-exchange markets to influence prices by purchasing or selling currencies since the mid-1990s.

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