Dollar Falls to Record Low Against Euro.


The dollar fell to a record low against the euro and declined versus the yen on speculation economic reports will show U.S. growth is losing momentum, adding to pressure on the Federal Reserve to cut interest rates again.

The U.S. dollar weakened against 13 of the 16 most-active currencies before data tomorrow that will show the lowest existing home sales in five years and the weakest household confidence in more than a year, according to Bloomberg News surveys. It also dropped to a 15-year low against a basket of six of its major peers.

``The U.S. economic outlook argues for further weakness in the dollar,'' said Ian Stannard, senior currency strategy at BNP Paribas SA in London. ``We expect the U.S. economy to slow quite rapidly over the course of the next few quarters. That will lead to further rate cuts.''

The dollar traded at $1.4130, the third day it has fallen to an all-time low against the European currency. It was at $1.4119 as of 7:05 a.m. in New York, from $1.4091 on Sept. 21. It was also 0.4 percent lower against the yen at 114.94, from 115.50 last week. Against the pound, the dollar slipped to $2.0261, the lowest since Sept. 13, from $2.0203. It may fall to $1.45 versus the euro in coming weeks, Stannard said. With Japanese markets closed for the Autumn Equinox holiday, trading was less than usual.

Currency Basket

The dollar fell to September 1992 low on a trade-weighted index that measures its value against a basket of six major currencies. It fell to 78.31 from 78.6 on Sept. 21.

Since the Fed cut the target rate for overnight lending between banks by 50 basis points on Sept. 18, traders have pushed the yield on Treasury two-year notes to almost three-quarters of a point below the 4.75 percent benchmark rate.

In the three previous occasions during the past 20 years when that has happened, policy makers have cut borrowing costs. The Fed next meets Oct. 31.

Sarah Hewin, a senior economist at American Express Bank in London, said she sees a ``significant'' risk of a U.S. recession.

``Housing does seem to be indicating there's a significant risk of recession,'' said Hewin. ``We would perhaps give a 30 to 40 percent chance of a recession coming through the U.S.''

The U.S. currency dropped to as low as 5.5012 Norwegian krone, the lowest since November 1980, and to $1.0015 against the Canadian dollar, from $0.9992 on Sept. 21, when it declined to a 31-year low of $1.0064.


Bloomberg
9/24/2007 5:49:39 AM