Dollar Gains Most in Almost 3 Years Versus Yen, Franc on Stocks

Dec. 1 -- The dollar gained the most in almost three years versus the yen and Swiss franc as global stocks rallied and traders boosted bets the Federal Reserve will cut borrowing costs a half-percentage point this month.

The U.S. currency posted its largest weekly gain since August versus the euro after Fed Chairman Ben S. Bernanke signaled he may lower interest rates to bolster growth, reducing the market's concerns about a U.S. recession. Reports next week are forecast to show slowdowns in hiring and the service sector.

``People are starting to think that the Fed will get ahead of the curve and use aggressive easing to keep us out of recession,'' said Jay Bryson, global economist with Wachovia Corp. in Charlotte, North Carolina. ``That's fueling both risk appetite and speculation about whether the dollar is starting to turn here.''

Japan's currency weakened 2.7 percent this week to 111.24 per U.S. dollar, from 108.29 on Nov. 23. It was the dollar's biggest gain since the period ended Dec. 10, 2004. The dollar rose 1.4 percent to $1.4633 against the euro, from $1.4837 on Nov. 23, its largest increase since the period ended Aug. 17.

The Swiss franc fell 2.7 percent to 1.1318 per dollar, from 1.1021 on Nov. 23. It was the franc's biggest weekly decline since the period ended March 25, 2005.

Bernanke said on Nov. 29 volatility has ``importantly affected'' financial markets. Fed Vice Chairman Donald Kohn said the previous day that the degree of deterioration over the last couple of weeks ``is not something that I personally anticipated.''

Risk Aversion

The Japanese currency still gained 3.8 percent versus the U.S. dollar and 9.7 percent versus the Australian dollar in November on concern a U.S. economic slowdown will affect global growth. The Standard & Poor's 500 Index rebounded 5.3 percent since Nov. 26 as traders became less risk averse.

The Organization for Economic Cooperation and Development said the estimated losses from U.S. subprime foreclosures may reach as much as $300 billion, on top of the more than $60 billion the world's biggest banks, brokers and insurers have already announced they will write down.

``A weaker dollar has been predicated on the fear that the U.S. economy is heading into a recession,'' said Michael Malpede, a senior currency analyst in Chicago at MF Global Ltd., the world's largest broker of exchange-traded futures and options contacts. ``Now, Bernanke suggests a rate cut may be in the cards next month.''

Malpede forecasts the dollar will rise to $1.45 per euro over the next two weeks.

Currency Forecasts

The U.S. currency will trade at $1.44 per euro by the end of June and 111 against the yen, according to the median estimate of 39 analysts and brokerages surveyed by Bloomberg. The dollar has weakened 1 percent versus the euro this month.

A government report on Dec. 7 will show non-farm payrolls rose 75,000 in November, compared with a 166,000 increase during the prior month, according the median forecast of 61 economists surveyed by Bloomberg.

The Institute for Supply Management's non-manufacturing index is forecast to slow to 55, from 55.8 in October. A reading above 50 indicates growth. The data will be released on Dec. 5.

The European Central Bank and the Bank of England will set interest rates on Dec. 6. They are forecast to hold borrowing costs at 4 percent and 5.75 percent, respectively, according to the median estimates in Bloomberg surveys.

Futures contracts on the Chicago Board of Trade show a 56 percent chance the Fed will lower its key rate a quarter- percentage point to 4.25 percent on Dec. 11, and 44 percent odds of a cut to 4 percent. A month ago there was a 64 percent chance of a quarter-point cut and 36 percent odds that borrowing costs would be unchanged.