Dollar Set for Weekly Loss as Oil Costs Rise

The dollar headed for a third weekly decline against the euro as the U.S. housing slump and record oil prices slow growth in the world's biggest economy., Bloomberg 5/23/2008 6:43:44 AM

The currency also dropped versus the yen and traded near the weakest level in a month versus the Swiss franc before an industry report today that may show U.S. home sales fell to the lowest since at least 1999. The Chinese yuan posted its biggest weekly increase this year on signs the country's officials are accelerating the currency's gains to curb rising prices.

The dollar fell to $1.5762 per euro at 9:34 a.m. in New York, from $1.5733 yesterday and $1.5577 at the end of last week. It bought 103.37 yen, compared with 104.07 yesterday and 104.04 on May 16. The euro fell to 163 yen, from 163.73.

The dollar has fallen against 13 of the 16 most-traded currencies this week as oil touched a record $135.09 a barrel yesterday on the New York Mercantile Exchange. The U.S. is the world's biggest importer of oil. Oil traded at $133.39 today.

The correlation coefficient between oil prices and the euro dollar exchange rate has been 0.95 for the past year, indicating they have moved in the same direction 95 percent of the time.

The dollar fell 14 percent against the euro in the past 12 months as the U.S. central bank slashed its benchmark interest rate to 2 percent, from 5.25 percent in September. The European Central Bank has kept its target rate at 4 percent. The Federal Reserve this week reduced its economic growth forecast and raised its projection for inflation.

Policy makers should seek a stronger U.S. dollar and Chinese yuan against the euro, French Finance Minister Christine Lagarde said yesterday.

The euro headed for its biggest weekly gain in two months against the dollar and a second weekly advance versus the yen on speculation the economies of the 15 countries that share the currency will withstand record high oil prices, lessening the need for a reduction in interest rates.

Dollar Set for Weekly Loss as Oil Costs Rise