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.
``Interest rates in the U.S. are falling below those in Europe,'' said David Watt, a senior currency strategist at RBC Capital Markets Inc. in Toronto, a unit of Canada's biggest bank by assets. ``There are few reasons to buy the dollar.''
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.
Euro Record
The euro rose to a record against the currencies of the region's 24 biggest trading partners on Jan. 11. It advanced against all but five of the 16 most-active currencies today. The single currency also climbed to a record 76.08 British pence and was recently at 76.06 pence, from 75.52 pence on Jan. 11.
The pound declined against 15 of the 16 major currencies even as a report showed U.K. factories increased prices at the fastest annual pace since 1991 in December. Investors are still betting the Bank of England will cut interest rates again later this year.
The common European currency extended gains against the dollar after rising beyond $1.4825 and $1.4850, where orders to buy the euro were placed, said Lee Wai Tuck, a strategist at Forecast Pte Ltd. in Singapore. Traders sometimes use automatic instructions to limit losses in case bets go the wrong way.
The dollar fell against all of the 16 most-active currencies before a Commerce Department report economists in a Bloomberg News survey say will show retail sales were unchanged in December. The data will be released tomorrow. The currency dropped for a third consecutive day against the Swiss franc and was trading at 1.0927 from 1.1014.
Bank Writedowns
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 euro has risen 15 percent in the past 12 months against the dollar as the Fed cut borrowing costs three times since Sept. 18 to prevent the worst housing slump in 16 years from dragging the economy into recession.
``We're expecting continued U.S. dollar weakness,'' Tobias Davis, senior foreign-exchange dealer at Custom House Global Foreign Exchange in Sydney, said in an interview with Bloomberg Television. ``It really is a concern that growth is grinding to a halt faster than some people expect.''
Futures Bets
Fed funds futures contracts on the Chicago Board of Trade show 58 percent odds the Fed will cut its 4.25 percent target rate for overnight bank loans to 3.75 percent at its Jan. 30 meeting. The odds have risen from no chance a month ago. The odds of a decrease to 3.5 percent were 44 percent, compared with zero a week ago. The ECB kept its benchmark rate unchanged at 4 percent last week.
The yield spread between German two-year notes and same- maturity Treasuries was 1.1 percentage points, near the widest since November 2002.
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