By Ben Levisohn and Inyoung Hwang Jan. 9 (Bloomberg) -- The dollar posted its biggest weekly loss since November versus the currencies of major U.S. trading partners as an unexpected drop in jobs boosted speculation that the Federal Reserve may extend stimulus measures. Sterling was the only major currency to fall against the dollar this week as Prime Minister Gordon Brown clashed with the Conservative opposition on the U.K.’s budget deficit. The greenback slid from a four-month high against the yen on the prospects for the world’s largest economy. A report next week is forecast to show U.S. retail sales grew at a slower pace. “Investors were disappointed and sold dollars,” said Hidetoshi Yanagihara, a senior currency trader at Mizuho Corporate Bank Ltd. in New York. “The market was expecting too much.” The trade-weighted Dollar Index, which the ICE futures exchange uses to track the greenback against currencies including the euro, yen and pound, decreased 0.5 percent to 77.471 yesterday, from 77.860 on Jan. 1. It touched 78.449 on Dec. 22, the highest level since September. Futures on the Chicago Board of Trade showed a 33 percent chance yesterday that the Fed will raise the target lending rate by at least a quarter-percentage point by the June meeting, down from 60 percent odds a week earlier. ‘Doesn’t Sit Well’ “The headline doesn’t sit well with the dollar,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. “People had been bracing for a flat to positive number. It puts expectations for a Fed rate hike on ice.” The dollar slid 0.4 percent to 92.66 yen this week, the greenback’s first five-day drop since Dec. 11. The dollar fell 0.6 to $1.4409 per euro, from $1.4324. The euro gained 0.2 percent to 133.46 yen, from 133.20. The greenback avoided declining beyond $1.45 per euro, a level last seen on Dec. 17, as the payrolls report showed a gain of 4,000 jobs in November, the first boost in almost two years. “The dollar has shown resilience,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “There were some mitigating factors. Should the damage to the dollar be limited in the aftermath of the report, that would be a positive sign for the greenback.” Dollar and Jobs The Dollar Index posted its biggest daily gain since January 2009 on Dec. 4, when the Labor Department reported an unexpected drop in U.S. unemployment. The index had fallen 17 percent from the 2009 peak reached in March as evidence of a global economic rebound spurred investors to buy higher-yielding assets funded with dollars. The dollar slid this week 3.1 percent to 12.6999 Mexican pesos, dropped 2.9 percent to 92.44 U.S. cents versus the Australian dollar and lost 1.9 percent to 5.6636 Norwegian kroner after the payrolls report. At their Dec. 15-16 meeting, Fed officials debated increasing and extending its stimulus program should the economy weaken, according to minutes released Jan. 6. A few favored such a move while one policy maker discussed a reduction. The target rate for overnight lending between banks was held at a range of zero to 0.25 percent. Japan’s Politics Japan’s currency strengthened against the dollar earlier yesterday after Japan’s Prime Minister Yukio Hatoyama told reporters that rapid foreign-exchange moves were “not good” after the newly appointed Finance Minister Naoto Kan said he would welcome a weaker yen. Kan’s predecessor, Hirohisa Fujii, had dismissed the value of a weaker yen to Japan’s economy. The yen appreciated to a 14-year high against the dollar in November, threatening earnings at exporters including Toyota Motor Corp. and Sony Corp. Sterling dropped 0.8 percent to $1.6023 as the U.K.’s Conservative opposition leader, David Cameron, called the ruling Labour Party’s economic policies a threat to the nation’s credit ratings. The Bank of England pledged on Jan. 7 to spend the rest of its 200 billion-pound ($318 billion) bond purchase program and held the target lending rate at a record low 0.5 percent. The U.K.’s producer prices rose 0.5 percent in December, the Office for National Statistics said yesterday. The median forecast of 12 economists in a Bloomberg survey was for a 0.2 percent increase. “This increased optimism about U.K. prospects clashes with the prevailing mood of most of the investors we meet,” Paul Robinson, a currency strategist at Barclays Plc in London, said in a research note. “There remains the risk of an increase of asset purchases” and “politics and the fiscal position” are negative for the pound, he said. --With assistance from Bo Nielsen in Copenhagen. Editors: Dennis Fitzgerald, Greg Storey To contact the reporters on this story: Ben Levisohn in New York at +1-212-617-6548 or blevisohn@bloomberg.net; Inyoung Hwang in New York at +1-212-617-7416 or ihwang7@bloomberg.net

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