London, Dec. 4 (Bloomberg) -- The euro rose to its highest in more than three years against the yen on speculation the European Central Bank will cut interest rates tomorrow, boosting economic growth in the 12 countries sharing the currency. The euro gained to 124.70 yen at 9 a.m. in London, from 124.21 late yesterday. It traded as high as 124.93, the most since July 27, 1999. The euro rose to $1.0011, from 99.69 U.S. cents. ECB President Wim Duisenberg said yesterday that inflation will slow as the region's economy barely grows, supporting recent comments from at least 10 policy makers that suggest they will lower the bank's main refinancing rate from 3.25 percent. ``Europe needs a rate cut, and that could lead to a euro rally,'' said Charles Sultan, a currency strategist at Thomson Global Markets. ``There's been a demand for euro-denominated securities'' from Japanese investors.
Twenty-two of the 30 economists surveyed by Bloomberg expect the central bank to trim its key rate to 2.75 percent tomorrow. Five forecast a quarter-percentage-point cut, and three see no change. A reduction would be the first since November 2001. ``ECB officials are setting the table for a rate cut, and the market is seeing that as beneficial for the euro as the focus returns to growth,'' said Thomas O'Malley, who manages currency risk in San Francisco for Barclays Global Investors, which has $760 billion under management. Forecasts for lower borrowing costs are reflected in rate futures. The yield on the three-month euro December contract is at 2.92 percent, more than a quarter percentage point below the ECB's benchmark rate. The three-month lending rate is 3.03 percent. The euro gained for a fifth day against its U.S. counterpart, rising above $1. It briefly climbed above parity yesterday for the first time in seven days, before finishing the day at 99.69 cents. ``The euro's going to up for the next couple of days,'' said Sonja Marten, a currency strategist at Dresdner Kleinwort Wasserstein. ``You have a bit of dollar weakness, and we're more upbeat on the euro.''
`Yen Should Weaken'
The yen has fallen since Finance Minister Masajuro Shiokawa said this week that an exchange rate of 150 to 160 yen per dollar would reflect the state of Japan's economy. A weaker yen would increase the profits exporters earn on overseas sales and fuel economic growth, analysts said. Exports accounted for half of Japan's second-quarter growth in gross domestic product. ``The yen should weaken,'' Barclays Global's O'Malley said. It may fall to 130 against the dollar in the first quarter of 2003, he said. It was at 124.56 at 9 a.m. in London, compared with 124.57 late yesterday. Euro-region growth will probably be 0.8 percent this year, while Japan's economy may contract 0.7 percent, the Organization for Economic Cooperation and Development said last month. The European Commission will publish its growth estimates for this quarter and for the first quarter of next year at 11 a.m. London time, the same time it gives its third-quarter GDP report.
The yen has fallen this week against all 16 other major currencies tracked by Bloomberg. The euro has gained 2.3 percent against its Japanese counterpart, compared with 1.6 percent for the dollar. Expectations that U.S. stocks will fall may stop the dollar from gaining as much as the euro against the yen, analysts said. Futures for the three major U.S. indexes declined after Hewlett- Packard Co. said sales may be less than forecast. ``We're not in a positive background'' for equities, ``and that's going to weigh on the dollar,'' Mitul Kotecha, head of foreign-exchange research at Credit Agricole Indosuez, said on Bloomberg Television. //www.quote.bloomberg.com