Dollar Declines

The dollar fell from a seven-month high against the yen and declined versus currencies in New Zealand and Australia on speculation its recent rally is too fast to sustain.

The U.S. currency retreated from its strongest level in almost six months against the euro, falling for the first time in four days, before U.S. housing and inflation reports this week that may add to speculation that the Federal Reserve will delay raising interest rates.

The U.S. currency declined 0.2 percent to 110.33 yen at 8:50 a.m. in New York, from 110.53 yen on Aug. 15, when it reached 110.66, the strongest level since Jan. 2. The dollar declined 0.3 percent to $1.4725 per euro, from $1.4687 at the end of last week. It touched $1.4647 today, the strongest since Feb. 20. The euro was at 162.43 yen, compared with 162.30.

The greenback fell 0.9 percent to 87.36 cents per Australian dollar, the biggest decline in a month. It dropped 1.1 percent to 71.41 cents per New Zealand dollar.

The dollar index, which tracks the greenback against the currencies of six U.S. trading partners, fell for the first time in 12 days, dropping 0.2 percent. It's up more than 7 percent since July 15 as economies outside the U.S. slowed and oil declined from a record.

The 14-day relative strength index of the euro against the dollar was at 19.73 today. A reading below 30 suggests a currency is due for a turnaround.

Traders added to bets that the U.S. housing slump and widening credit-market losses will keep the Fed from raising interest rates this year after cutting them seven times beginning in September. Fed funds futures on the Chicago Board of Trade show a 21 percent chance the U.S. central bank will increase the 2 percent target rate for overnight lending between banks by at least a quarter-percentage point by its Dec. 16 meeting, down from 47 percent odds a week earlier. Policy makers next meet Sept. 16.

Benchmark interest rates are 4.25 percent in the euro area, 7.25 percent in Australia and 8 percent in New Zealand.

Dollar Declines, Bloomberg
8/18/2008 7:02:34 AM