Dollar Drops Most Since 1998

The dollar fell the most since 1998 against the currencies of six major U.S. trading partners as economists forecast that the Federal Reserve will cut the target lending rate by a half-percentage point today.

The euro rose against the dollar for a second day after Chancellor Angela Merkel said Germany will announce ``bold'' measures to bolster the economy. The yen gained versus the U.S. currency as some traders judged its biggest decline since 1974 yesterday was too much to sustain.

The dollar declined 1.5 percent to $1.2867 per euro at 12:01 p.m. in New York, from $1.2683 yesterday. The yen rose 0.4 percent to 97.63 per dollar from 98.03 yesterday, when it fell 5.4 percent, its biggest decline in more than three decades. The yen decreased 1 percent to 125.52 versus the euro from 124.32 after dropping 6.8 percent yesterday, the most since the 15- nation currency's 1999 debut.

The dollar touched $1.2330 per euro yesterday, the strongest in more than two years, on concern the seizure of short-term borrowing between banks may further slow global growth, encouraging investors to take refuge in the greenback.

ICE Futures' Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and the Swedish krona, fell 2.2 percent, the biggest decline since October 1998. It touched the highest level since April 2006 yesterday.

The Canadian dollar gained the most in at least 37 years as its U.S. counterpart weakened and commodities including oil, natural gas, copper and gold increased. The Canadian dollar gained as much as 3.7 percent to C$1.2277 per U.S. dollar.

The pound rose 2.5 percent to $1.6301, bringing its gain in the past two days to 4.7 percent. The U.K.'s main stock index rose more than 4 percent and the central bank said lenders increased mortgage approvals last month for the first time since June 2007.

Japan's currency plunged yesterday as a 10.8 percent rally in the Standard & Poor's 500 Index encouraged investors to resume carry trades, in which they get funds in countries with low borrowing costs and buy higher-yielding assets. The yen also fell as speculation increased that the Bank of Japan will cut its target lending rate by a quarter-percentage point. The yen has jumped 32 percent versus the euro and 15 percent against the dollar this year on speculation the global economic slump will deepen.,
10/29/2008 9:29:11 AM