By Bo Nielsen Dec. 22 (Bloomberg) -- The dollar fell from near its highest level in almost three months against the euro on concern recent gains overstated the prospects for interest-rate increases as the U.S. economy emerges from the recession. Federal Reserve Bank of Chicago President Charles Evans yesterday said the jobless rate will probably stay “quite high” next year, damping speculation the central bank plans to raise rates. The dollar had strengthened against all major currencies since Dec. 4, when a report showed falling unemployment and fueled speculation the Fed would move sooner than some economists had expected. “The dollar has moved too fast compared with what we see coming from the Fed,” said Carl Hammer, a senior currency strategist in Stockholm with SEB AB, Sweden’s third-biggest bank. “The Fed can afford to be patient, and we still see a couple of quarters of dollar weakness left.” The U.S. currency was at $1.4315 per euro at 10:03 a.m. in London from $1.4275 in New York yesterday. It earlier touched $1.4266, close to the $1.4262 level reached last week that was the highest since Sept. 4. The yen was at 130.62 per euro from 130.18. The dollar will trade at $1.50 by the end of March, SEB’s Hammer said. The dollar’s gains accelerated when the Fed began using Treasuries and agency debt in reverse repurchase agreements this month to test a mechanism for unwinding unprecedented monetary stimulus, removing a total of $990 million in cash from the banking system in five operations since Dec. 3. Futures Trading Futures trading in Chicago yesterday indicated a 46 percent chance that the Fed will increase its target rate for overnight lending between banks, currently between zero and 0.25 percent, by at least a quarter-percentage point by the June meeting, up from a 32 percent likelihood a month ago. “While trading leads suggest sustained gains in the dollar, the U.S. currency looks vulnerable to selling pressure in the near term, as technical charts are now signaling that the rebound was too fast,” said Toshiya Yamauchi, manager of foreign-exchange margin trading at Ueda Harlow Ltd. in Tokyo. The dollar pared its decline after Greece’s government bond ratings were cut one step to A2 from A1 at Moody’s Investors Service, less than some strategists expected. Moody’s kept a negative outlook on the rating. The pound pared gains versus the dollar and the euro after a report showed the U.K. economy shrank less than previously estimated in the third quarter. Sterling was little changed at $1.6046 after trading at $1.61 earlier. The U.K. currency fell 0.3 percent to 89.24 pence per euro. U.K. GDP Gross domestic product fell 0.2 percent from the second quarter, compared with a previous measurement of a 0.3 percent drop, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 24 economists was for a 0.1 percent contraction. The yen fell against 15 of the 16 most traded currencies after Bank of Japan Governor Masaaki Shirakawa said yesterday the central bank will “persistently” keep interest rates at “virtually zero” to fight deflation. The central bank unveiled a 10 trillion-yen ($11 billion) lending program three weeks ago. “The recent series of comments from the BOJ and Shirakawa clearly suggest we won’t see an exit from easing measures in the foreseeable future,” said Yousuke Hosokawa, a senior currency dealer in Tokyo at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest bank. “People now feel safe to sell the yen.” To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net

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