Dollar Falls to Record Low of $1.50 per Euro on Rate Outlook

Feb. 27 -- The dollar fell to a record low of $1.50 per euro on speculation Federal Reserve Chairman Ben S. Bernanke will indicate the U.S. central bank is prepared to keep lowering interest rates.

The dollar fell against 13 of the 16 most-active currencies before Bernanke testifies to Congress today. A government report will probably show a drop in new home sales, bolstering the Fed's case for cutting its benchmark 3 percent rate. The euro reached a six-week high against the yen as traders bet the European Central Bank will keep its 4 percent rate unchanged in coming months.

``We're going into a new leg of dollar weakness,'' Tony Morriss, a currency strategist in Sydney at Australia & New Zealand Banking Group Ltd., Australia's third-biggest bank, said in an interview with Bloomberg Television. ``The Federal Reserve is sending a pretty clear signal they need to support growth.''

The dollar touched $1.5047 per euro, the lowest since the European single currency was introduced in 1999, before trading at $1.4994 as of 2:06 p.m. in Tokyo from $1.4974 in late New York yesterday. It also fell to 107.08 yen from 107.28 yen. The euro was at 160.57 yen from 160.67. The dollar may fall to $1.53 per euro in the next three months, Morriss said.

The U.S. currency declined the most against the Taiwan dollar and the South African rand before Bernanke delivers his semi-annual testimony to the House Financial Services Committee at 10 a.m. in Washington. It slid 0.6 percent to NT$31.005 versus Taiwan's currency, breaching NT$31.0 for the first time in almost three years, and 0.5 percent to 7.5165 against the rand.

The currency fell to a 23-year low of 81.85 cents against the New Zealand dollar before paring back to 81.54 cents, from 81.71 yesterday. It was at 93.50 cents per Australian dollar from 93.38.

Commodities Fallout

The slump in the dollar pushed oil prices to a record yesterday and increased the cost of buying wheat, sugar, copper, cotton and cocoa. Nine of the 10 most-active currencies in Asia outside Japan gained against the dollar today. Indonesia's rupiah rose 0.4 percent to 9,064 per dollar and the Singapore dollar touched an 11-year high before trading at S$1.4013. The yuan advanced 0.2 percent to 7.1462.

Chinese Premier Wen Jiabao yesterday told visiting U.S. Secretary of State Condoleezza Rice a stable dollar is good for the U.S. and the rest of the world, Xinhua news agency reported.

Dollar Index

The dollar index will tumble to a record low ``within weeks'' as the Fed lowers rates to prevent the world's largest economy from slipping into a recession, Bank of America N.A. analysts said in a research note dated today.

The currency will continue to trade below $1.50 for the next few weeks, Robert Sinche, head of global currency strategy at the New York-based bank, wrote in the report. The index traded on ICE Futures in New York, which tracks the currency against its six major counterparts, fell 0.2 percent to 74.611. It reached 74.484 on Nov. 23, the lowest since the gauge started trading in 1973.

``It's crunch time for the dollar,'' said Yuji Saito, head of foreign-exchange sales in Tokyo at Societe Generale SA, a unit of France's second-largest bank by market value. ``Bernanke may know that monetary policy alone cannot support the slowing U.S. economy.''

The U.S. currency may fall to $1.51 per euro and 106.80 yen today, Saito forecast.

Dollar Forecasts

The dollar will rebound to $1.48 per euro by the end of March, according to the median forecast in a Bloomberg News survey of 41 analysts. Merrill Lynch & Co., the third-biggest U.S. securities firm, is the most bearish, predicting it will fall to $1.57 per euro by March-end.

New home sales dropped 0.7 percent to an annual pace of 600,000 last month, according to the Bloomberg survey median estimate before today's Commerce Department report.

Futures on the Chicago Board of Trade show traders see a 96 percent chance the U.S. central bank will reduce the 3 percent target rate for overnight lending between banks by 50 basis points at their March 18 meeting, and a 4 percent likelihood of a quarter-point cut. The Fed has already cut rates five times since Sept. 18.

The euro gained as the Munich-based Ifo institute yesterday said its business climate index rose to 104.1 in February, from 103.4 in January. The median estimate in a Bloomberg survey was for a drop to 102.9. After the report, traders pared bets the ECB will lower its target from the current 4 percent level.

`Unexpectedly Strong'

``Germany's business sentiment was unexpectedly strong,'' said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany's second-largest bank. ``The ECB is likely to keep borrowing costs unchanged instead of cutting rates as some had expected.''

The euro may rise to 161.40 yen today, Muramatsu forecast.

The odds of the ECB lowering borrowing costs fell yesterday, with the implied yield on the Euribor futures contract for June rising 4 basis points to 4.15 percent. The yield averaged 0.18 percentage point more than the ECB's benchmark from 1999 until August. A basis point is 0.01 percentage point.