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.