Dollar Declines Against Euro

The dollar dropped to near a record low against the euro and weakened versus the yen on concern U.S. bank losses and writedowns will increase this week, further eroding confidence in the financial system.

The Dollar Index on ICE futures in New York fell to the lowest level in almost three months before Wells Fargo & Co., Merrill Lynch & Co., JPMorgan Chase & Co. and Citigroup Inc. report earnings this week that will probably add to the $417 billion of credit losses since last year. Federal Reserve Chairman Ben S. Bernanke yesterday abandoned his June assessment that economic risks had diminished.

The U.S. currency dropped to $1.5931 per euro as of 6:33 a.m. in New York, from $1.5911 yesterday, when it slid to a record $1.6038. The dollar fell to 104.07 yen, from 104.73 yen. The euro dropped to 165.54 yen, from 166.65.

The dollar will weaken to $1.6125 per euro this month and trade between $1.60 and $1.63 through September, Frank said.

The Dollar Index, which tracks the currency against those of six U.S. trading partners, fell for a sixth day, dropping 0.4 percent to 71.6, the lowest level since April 23.

The euro was supported after a report showed inflation in Europe accelerated to 4 percent in June, the highest in more than 16 years. The inflation rate in the euro area rose from 3.7 percent in May, the European Union statistics office in Luxembourg said, confirming an estimate published on June 30.

In testimony before the Senate Banking Committee yesterday, Bernanke said growth and inflation risks are increasing, dropping his June assessment that the threat of an economic downturn has diminished.

Treasury Secretary Henry Paulson told the panel the government would purchase shares in Freddie Mac and Fannie Mae ``only if necessary'' to restore confidence in the two largest buyers of U.S. mortgages. Bernanke speaks again today before the House Financial Services Committee at 10 a.m. in Washington.

The U.S. currency has given up most of the gains made versus the euro since July 3, when European Central Bank President Jean-Claude Trichet said he had ``no bias'' on future interest- rate moves. The dollar strengthened 0.6 percent to $1.5706 per euro that week. It has since slumped 1.2 percent on concern that losses will deepen at Fannie Mae and Freddie Mac, the two largest buyers of U.S. mortgages.

U.S. consumer prices may have risen at an annual rate of 4.5 percent in June, the most since September 2005, according to the median forecast of economists surveyed by Bloomberg News. The Labor Department report is due at 8:30 a.m. in New York.

Dollar Declines Against Euro, Bloomberg
7/16/2008 6:42:22 AM