Dollar May Increase Against Euro on Slowing Growth in Europe

The dollar may advance against the euro for a second straight day on speculation the European Central Bank might lower interest rates this year as the economy shows signs of weakness.

The U.S. currency gained the most in almost two months versus the euro yesterday after a report showed European service industries expanded at the slowest pace in more than four years last month. The euro has declined 2.2 percent since touching an all-time high of $1.4967 on Nov. 23. The ECB will hold borrowing costs at 4 percent tomorrow, according to all 56 economists surveyed by Bloomberg News.

The dollar strengthened against the euro yesterday after Royal Bank of Scotland Group Plc said its European services index dropped to 50.6 last month, the lowest since July 2003, from 53.1 in December. A reading above 50 indicates growth. Traders raised bets ECB policy makers may start cutting interest rates during the second quarter.

The dollar has fallen against 11 of the 16 most-active currencies this year as the Federal Reserve cut its benchmark interest rate by 1.25 percentage points to 3 percent last month, diminishing the allure of U.S. assets.

Dollar May Increase Against Euro on Slowing Growth in Europe, Bloomberg
2/5/2008 6:58:16 PM