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By Bloomberg

The dollar fell for the first time in three days against the yen as Federal Reserve of Minneapolis President Narayana Kocherlakota said raising U.S. interest rates this year would hinder a recovery in inflation.

The greenback halted a four-day gain versus the euro even as economists predicted a U.S. report today will show employers added more than 200,000 jobs for an 11th month in December. The yen strengthened as trading patterns suggested its six-month slide against the dollar was excessive. The euro headed for its biggest weekly drop versus the yen since June after European Central Bank President Mario Draghi said stimulus measures may include sovereign-bond purchases.

“We’re seeing some Fed officials starting to hint they may slow the pace of rate increases, so even if the labor report shows strong numbers, it won’t be a reason for the dollar to gain too much,” said Daisuke Karakama, chief market economist at Mizuho Bank Ltd. in Tokyo. “There aren’t many reasons for the dollar to trend lower either. Even if the labor report turns out to be bad, we shouldn’t expect the dollar to fall below 118 yen.”

The dollar fell 0.3 percent to 119.36 yen at 6:09 a.m. in London after rising to 121.85 on Dec. 8, the highest since July 2007. The U.S. currency dropped 0.1 percent to $1.1810 per euro after reaching $1.1754 yesterday, the strongest since December 2005. The euro declined 0.2 percent to 140.88 yen, having tumbled 2.6 percent this week.

‘Slow Recovery’

Increasing borrowing costs in 2015 “would only further retard the pace of the slow recovery in inflation,” Kocherlakota said in the text of speech prepared for delivery at a town hall meeting in Minneapolis. The jobless rate “remains elevated” compared with the Fed’s assessments of long-run value even after a “rapid” decline in 2014, he said.

There’s a 58 percent likelihood the Federal Reserve will raise its target federal funds rate from a zero-to-0.25 percent range to at least 0.5 percent by September, futures data compiled by Bloomberg show.

The dollar has surged 16 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro fell 1.5 percent and the yen dropped 3.3 percent.

The yen is poised to rally to as strong as 111.40 per dollar after its six-month slide stalled in January at the intersection of a 14-year trendline and a long-term Fibonacci retracement level, according to Commerzbank AG.

‘More Negative’

“Dollar-yen is looking more negative,” Commerzbank technical analyst Karen Jones said by phone from London yesterday. “You’ve got two very, very long-term levels of resistance directly above the market.”

The euro headed for a fourth weekly decline against the dollar after Draghi, in a letter to European Parliament lawmaker Luke Flanagan, echoed his remarks made after the Governing Council’s Dec. 4 meeting.

“The Governing Council will reassess the monetary stimulus,” Draghi said in the letter published on the ECB’s website. “This may imply adjusting the size, pace and composition of the ECB’s measures. Such measures may entail the purchase of a variety of assets -- one of which could be sovereign bonds.”

The euro has fallen against all its 16 major counterparts this week, sliding 3.3 percent versus the New Zealand dollar and 2.8 percent against Mexico’s peso.

‘Key Driver’

“How many hints do you need from Draghi that the ECB will potentially look at government bond purchases?” said Robert Rennie, head of currency and commodity strategy at Westpac Banking Corp. in Sydney. “That continues to be a key driver of euro weakness.”

The 19-nation currency is set to fall as low as $1.15, Rennie said, without giving a time frame.

South Korea’s won extended its biggest weekly gain since August as the nation’s Kospi stock index jumped 1.1 percent.

“Lower risk aversion in most asset classes and a better tone to equities should see a further recovery in net equity inflows to Korea,” said Jonathan Cavenagh, a currency strategist at Westpac in Singapore. That should help the won keep strengthening in the near term, he said.

The won advanced 0.7 percent to 1,089.68 per dollar, extending its weekly gain to 1.3 percent, the most since the period ended Aug. 15.