Dollar Falls to Two-Month Low Versus Euro

The dollar weakened beyond $1.37 per euro for the first time in two months on bets the Federal Reserve will cut borrowing costs to the lowest on record.

The greenback approached a 13-year low against the Japanese currency as a Fed report showed New York state manufacturing contracted in December at the fastest pace on record. The dollar dropped versus the pound and the Danish krone on reduced demand for the greenback as a haven.

The dollar declined 2.2 percent to $1.3673 per euro at 1:45 p.m. in New York, from $1.3369 on Dec. 12, after touching $1.3703, the weakest since Oct. 14. The dollar slid 0.5 percent to 90.76 yen from 91.21, after reaching 88.53 yen on Dec. 12, the weakest level since August 1995. The euro rose 1.9 percent to 124.08 yen from 121.83.

The ruble fell as much as 2.2 percent to a four-year low of 37.8611 per euro after Russia’s central bank devalued the currency for a second time in a week. Against the dollar, the ruble traded at 27.6484. Russia has drained 27 percent of its reserves, the world’s third-largest, trying to stem a 16 percent decline in the currency against the dollar since August.

The dollar dropped 2.3 percent to $1.5296 against the pound and 2.1 percent to 5.4523 Danish krone as the cost of borrowing in the greenback tumbled to the lowest in more than four years.

The dollar gained 7.1 percent against the euro this year, 29 percent versus the pound and 6.6 percent against the krone as investors bought the greenback to flee riskier assets and repay dollar-denominated loans from lenders reining in credit.

The dollar extended its drop versus the pound and the Danish krone after the U.S. Treasury reported that international demand for long-term U.S. financial assets weakened in October as foreign investors sold American stocks, corporate bonds and agency debt.

The U.S. currency slid 6.6 percent measured by the trade- weighted Dollar Index from a two-year high on Nov. 21 after strengthening from July to November. Since peaking three weeks ago, the dollar fell against the gauge of the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona., Bloomberg
12/15/2008 11:38:09 AM