Dollar Drops Versus Euro

The dollar dropped against the euro for a second day as declines in housing and industrial production raised speculation that the Federal Reserve will delay increasing borrowing costs this year.

The currency also fell against the South African rand and the Brazilian real as futures traders pared bets on rate increases at next week's policy meeting. The pound weakened versus the euro and the dollar after Bank of England Governor Mervyn King said the path to bringing inflation within the central bank's target is ``uncertain.''

The dollar decreased 0.2 percent to $1.5512 per euro at 3:18 p.m. in New York, from $1.5477 yesterday. The U.S. currency fell 0.2 percent to 108.01 yen, from 108.22 yesterday, when it rose to 108.58, the highest since Feb. 14. The yen traded at 167.54 per euro, compared with 167.49. It earlier touched 167.84, the weakest level since July 23.

The U.S. currency rose 2.5 percent against the euro last week, the most since 2005, as Fed Chairman Ben S. Bernanke said economic risks have faded, prompting investors to bet the central bank will raise interest rates later this year.

U.S. housing starts dropped to an annual rate of 975,000 in May, from a revised 1.008 million the previous month, the Commerce Department said. It was the lowest since March 1991.

Production in U.S. factories, mines and utilities declined 0.2 percent last month after dropping 0.7 percent in April, the Fed reported. Economists had forecast industrial production would rise 0.1 percent, according to the median of 68 estimates in a Bloomberg News survey.

The dollar weakened earlier against the euro after the Wall Street Journal and the Financial Times reported the U.S. central bank would probably leave borrowing costs unchanged beyond its June policy meeting.

The dollar has lost 10 percent against the euro since the Fed started to lower rates from 5.25 percent in mid-September. The weaker dollar has helped push commodities, such as oil and corn, to record highs, sparking inflation. Prices paid to U.S. producers rose 1.4 percent in May, the biggest gain since November, the Labor Department said.

Dollar Drops Versus Euro, Bloomberg
6/17/2008 12:29:41 PM