Dec. 4 (Bloomberg) -- The dollar fell from a two-week high against the euro on bets a U.S. report forecast to show the highest unemployment rate since 1993 will add to the case for the Federal Reserve to lower interest rates toward zero.

The pound dropped to a record versus the euro as the Bank of England cut its main interest rate to the lowest since 1951. European Central Bank President Jean-Claude Trichet delivered the biggest interest-rate cut in the bank’s 10-year history.

“The dollar rally is close to a peak,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “We expect zero rates, the recession and the rapid expansion in public debt to be a big drag on the dollar into 2009.”

The dollar dropped 0.5 percent to $1.2782 per euro at 4:10 p.m. in New York, from $1.2717 yesterday. It touched $1.2550, the strongest since Nov. 21. The dollar fell 1.1 percent to 92.32 yen from 93.30 after touching 92.07, the lowest since Oct. 27. The euro dropped 0.5 percent to 118.02 yen from 118.64.

Sterling fell as much as 1.4 percent to 87.26 pence per euro, the weakest level since the 15-nation currency’s 1999 debut, after the Bank of England lowered its target lending rate by a full percentage point to 2 percent. The pound slid 0.7 percent to $1.4681.

The ECB lowered its main refinancing rate by 0.75 percentage point to 2.5 percent. The median forecast of 57 economists surveyed by Bloomberg News was for a reduction of a half-percentage point.

U.S. Payrolls

U.S. payrolls shrank by 333,000 workers in November after a drop of 240,000 in the previous month, according to the median forecast of 71 economists surveyed by Bloomberg News. The jobless rate jumped to 6.8 percent, the highest level in 15 years, according to the median forecast. The report from the Labor Department is due tomorrow.

“Some are selling the dollar ahead of the payroll report,” said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “You have a perfect storm building for the dollar.”

Federal Reserve Chairman Ben S. Bernanke urged today in a speech in Washington using more taxpayer funds for new efforts to prevent home foreclosures, saying the private sector is incapable of coping with the crisis on its own. Futures on the Chicago Board of Trade showed 64 percent odds the Fed will lower its 1 percent target rate to 0.25 percent on Dec. 16, compared with a 52 percent chance yesterday.

Sweden’s Krona

Sweden’s krona fell as much as 2 percent to 10.6229 against the euro, near a record low, as the Riksbank cut the benchmark rate by the most in 16 years to revive the ailing economy. Policy makers reduced the repo rate today by 1.75 percentage points to 2 percent, compared with the median forecast of a one- percentage-point reduction.

The cut in Sweden, which came before the ECB and BOE announced their decisions, sparked a brief run on the euro and the pound as investors speculated the two central banks would make deep reductions.

“We saw a sharp sell-off in the euro and sterling after the Riksbank shocked the system,” said Paresh Upadhyaya, who helps manage $50 billion in currency assets as a senior vice president at Putnam Investments in Boston. “When the actual decisions came out, you started to see bids coming back.”

The euro and pound may weaken against the dollar as the ECB and the BOE “continue to ease,” Upadhyaya said.

New Zealand’s Cut

New Zealand’s Reserve Bank lowered its official cash rate by a record 1.5 percentage points to 5 percent and signaled more cuts as it attempts to steer the economy out of recession. New Zealand’s dollar was little changed at 53.22 U.S. cents.

“In pretty much every instance this week, the central banks have delivered more than the market was thinking,” said Jim McCormick, head of foreign-exchange and local-markets strategy at Citigroup Inc. in London. “That’s staring to create the notion that policy responses are beginning to get closer to being ahead of the curve. I wouldn’t be surprised to see a higher euro-dollar and a lower dollar against many crosses soon.”

The yuan traded at 6.8837 per dollar, near a five-month low, on speculation U.S. Treasury Secretary Henry Paulson’s calls for a stronger yuan during a Beijing visit this week won’t stop China from weakening its currency to support exporters.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net

Last Updated: December 4, 2008 16:21 EST