The yen declined the most against the euro since October and the dollar weakened on expectation the highest U.S. unemployment rate in 16 years will spur passage of an economic stimulus package, reducing haven demand. The pound rose this week to a two-month high against the euro on speculation the Bank of England’s interest-rate cuts will help the U.K. recover faster than the rest of Europe. The yen fell for a second week against the dollar on bets the stimulus package and a bank rescue will revive U.S. confidence. “We are going to see the yen start to reverse,” said Bob Parker, vice chairman in London of Credit Suisse Asset Management, which oversees about $600 billion, in an interview on Bloomberg Television. “The yen was the strongest currency in the world over the past five months.” The yen dropped 3.1 percent to 118.85 versus the euro this week, from 115.23 on Jan. 30, the biggest drop since the five days ended Oct. 31. Japan’s currency depreciated 2.1 percent to 91.89 per dollar from 89.92 a week earlier, touching a one-month low of 92.25 on Feb. 5. The dollar slid 1 percent to $1.2940 per euro from $1.2813, its first weekly decline this year. The greenback declined from a two-month high of $1.2706 set Feb. 2. The Australian dollar posted its first weekly gain versus the dollar since early January, advancing 5.9 percent to 67.53 U.S. cents on speculation policy makers will slow the pace of interest-rate cuts after lowering the cash target to 3.25 percent. The Reserve Bank said yesterday in a quarterly statement that the “expansionary monetary and fiscal policies now in place will help to cushion” the economy from “contractionary forces.” The Aussie reached 68.02 yesterday, the highest level since Jan. 19. Mexico’s Peso Mexico’s peso rose for the first time against the dollar in four weeks, rebounding from the all-time low as Banco Santander SA said Banco de Mexico bought the peso directly from banks for a third day yesterday. The central bank withheld information on the amounts purchased. The peso increased 1 percent to 14.1986 versus the dollar after touching a record 14.7059 on Feb. 4. The yen slid against all of the major currencies this week, declining 7.1 percent to 49.01 against the New Zealand currency and 9 percent to 9.61 versus the rand. A 5.1 percent gain in Standard & Poor’s 500 Index encouraged investors to resume carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan’s 0.1 percent target lending rate compares with 3.5 percent in New Zealand and 10.5 percent in South Africa. Republican Senator Charles Grassley said yesterday Congress will submit an economic stimulus bill to President Barack Obama by next week. Lawmakers are debating a $900 billion package of tax cuts and spending to boost economic growth. Bank Rescue Treasury Secretary Timothy Geithner will announce a plan on Feb. 9 to aid U.S. banks that will likely emphasize guarantees of toxic assets over proposals to create an aggregator bank that would remove them from balance sheets, according to people familiar with the proposal. U.S. employers eliminated 598,000 jobs last month, following a reduction of 577,000 in December, the Labor Department said yesterday in Washington. The median forecast of 75 economists surveyed by Bloomberg News was for a reduction of 540,000. The unemployment rate increased to 7.6 percent, the highest level since 1992. “The market is looking past the number, anticipating we may get a bank rescue package and a fiscal package soon,” said Ron Leven, executive vice president and a senior currency strategist at Morgan Stanley in New York. The pound gained 0.9 percent to 87.31 pence per euro after touching 86.64, the strongest level since Dec. 8. The Bank of England lowered the main rate by a half-percentage point to an all-time low of 1 percent on Feb. 5. ECB’s Rate Signal European Central Bank President Jean-Claude Trichet signaled on the same day that policy makers will lower the main refinancing rate by a half-percentage point next month after holding the target at 2 percent. The yen may weaken to 95 per dollar as volatility declines and Japanese exporters reduce yen buying hedges, Derek Halpenny, London-based European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd., wrote in a research note yesterday. Halpenny didn’t give a time frame for his forecast. Implied volatility on one-month dollar-yen options dropped to 18.12 percent yesterday, the lowest level since Jan. 7, according to data complied by Bloomberg. Lower volatility makes carry trades more attractive by making profit from differences in interest rates more predictable. The dollar depreciated 4.4 percent this week to 52.75 U.S. cents versus the New Zealand dollar and 6.1 percent to 9.69 rand on reduced demand for the world’s reserve currency as a haven from global financial turmoil. “A lot of money that sat on the sideline is now being put back to work,” said Samarjit Shankar, director of strategy for the global markets group in Boston at Bank of New York Mellon, the world’s largest custodial bank, with more than $23 trillion in assets under administration. “People are starting to move to make risky bets.”

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