Dollar Falls to Record Low Against Euro


The dollar fell to a record low against the euro as investors bet the Federal Reserve will reduce its target interest rate, narrowing the gap between the U.S. and Europe.

The currency declined for a sixth day, the longest losing streak since April, after the National Association of Realtors yesterday cut its home sales forecast, stoking concern the housing slump is spreading. Investors meanwhile added to wagers the European Central Bank will raise borrowing costs by year-end.

"The fundamentals for the dollar remain poor because the Fed's the only major central bank that's likely to cut interest rates,'' said Adam Cole, head of global currency strategy at RBC Capital Markets in London.

The dollar fell to $1.3887 per euro by 7:53 a.m. in New York, after earlier declining to an all-time low of $1.3889. That compares with the previous low of $1.3852 on July 24.

The U.S. currency has fallen more than 7 percent from its highest point this year, reached Jan. 12.

The dollar also slipped to 113.83 yen from 114.27 yesterday, on speculation Japanese investors will trim riskier overseas bond holdings after Prime Minister Shinzo Abe said he will resign.

U.S. existing home sales will fall 8.6 percent in 2007, exceeding the 6.8 percent drop estimated a month ago, according to the National Association of Realtors. New-home sales will probably decline 24 percent on top of an 18 percent drop in 2006. The dollar fell more than 1 percent last week after a government report showed the economy unexpectedly shed jobs in August.

"The Fed should cut rates by a half-percentage point as the economy's outlook has worsened,'' said Masashi Kurabe, currency manager at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. "European rates may go up as soon as the markets stabilize. A narrowing interest-rate differential is positive for the euro.''


Bloomberg
9/12/2007 6:35:39 AM