Dollar Falls on Speculation Fed Will Cut Rates


The dollar fell to within a cent of its all-time low versus the euro on speculation U.S. interest rates will drop below those of the 15 nations that share the single European currency for the first time in three years.

The dollar extended three weeks of declines as Federal Reserve officials including Chairman Ben S. Bernanke last week signaled they favor greater ``insurance'' against an economic slowdown amid the slump in the housing market. European Central Bank council member Klaus Liebscher today said he sees ``significant'' upside risks to inflation.

The dollar fell to as low as $1.4915 against the euro, the weakest since declining to a record low on Nov. 23 of $1.4967, and traded at $1.4888 as of 9:16 a.m. in New York, from $1.4776 on Jan. 11. It depreciated the most against the yen since Jan. 2, to 107.86 from 108.84. Watt said the dollar could weaken to $1.50 per euro this week.

The U.S. currency may fall to $1.55 per euro by the end of the first quarter, said London-based Bilal Hafeez, global head of currency strategy at Deutsche Bank AG, the world's largest foreign-currency trader. That compares with a median forecast of $1.47, compiled by Bloomberg from reports by 45 strategists and economists. Investment banks including UBS AG, the world's second-biggest currency trader, cut their dollar forecasts last week.

The dollar also declined amid speculation U.S. investment banks will announce writedowns of as much as $25 billion worth of assets this week, strategists at UBS wrote in a note to clients. Citigroup Inc., Bank of America Corp. and Merrill Lynch & Co. may report their worst-ever quarter, beset by $35 billion of writedowns that threaten to crimp profit through 2008.

The dollar also fell against the yen as one-month implied volatility for yen options against the dollar rose to 13.45 percent from 12.13 percent on Jan. 11. Higher volatility may deter so-called carry trades funded in yen as it exposes the bets to greater exchange-rate fluctuation risks.


TradingEconomics.com, Bloomberg
1/14/2008 6:43:51 AM