Dollar Falls to Record Low Against Euro Before Durable Goods

By Stanley White and Min Zeng

Sept. 26 (Bloomberg) -- The dollar declined to a record low against the euro before data that may show a drop in U.S. durable goods orders, adding to evidence the economy is slowing.

The dollar fell against 11 of the 16 most-active currencies after economic data yesterday showed declines in consumer confidence and home resales. Traders increased bets the Federal Reserve will cut borrowing costs for a second time this year.

``The dollar is mired in weakness,'' said Nobuaki Kubo, vice president of foreign exchange at BBH Investment Services Inc., a unit of Brown Brothers Harriman. ``Investors are trading off concerns the economy will weaken and interest rates will fall.''

The dollar traded at $1.4159 against the euro at 8:23 a.m. in Tokyo and reached $1.4162, the lowest since the European currency's debut in January 1999. It bought 114.69 yen. The dollar may fall to $1.42 against the euro and 114 yen today, Tokyo-based Kubo forecast.

Fed policy makers on Sept. 18 cut the target rate for overnight lending between banks by a half-percentage point to 4.75 percent to alleviate a housing slowdown that's weakening the U.S. economy. The European Central Bank's target lending rate is 4 percent, and the Bank of Japan's is 0.5 percent, the lowest among industrialized countries.

Futures contracts yesterday showed 94 percent odds of a quarter-percentage point cut to 4.5 percent at the Fed's next meeting on Oct. 31, up from a 72 percent Sept. 24.

Durable Goods

The Commerce Department will say orders for U.S. products meant to last several years fell 4 percent in August, the most in seven months, according to a Bloomberg survey. The data are due 8:30 a.m. in Washington.

The dollar has fallen against 13 of the 16 most-active currencies this quarter, depreciating 4.3 percent against the euro and 6.9 percent versus the yen. For the year, the dollar is down 6.7 percent against the euro and 3.7 percent versus the yen.

``The market is clearly bearish on the dollar,'' said Paresh Upadhyaya, who helps manage $29 billion in currency assets in Boston at Putnam Investments. Fed policy makers ``focused more on growth than inflation, and clearly they have an easing bias.''

The dollar will fall to $1.45 per euro and 110 yen by year- end, he said.

Consumer Confidence

The New York Board of Trade's index that compares the dollar with six other major currencies touched 78.213 yesterday, the lowest since September 1992.

The New York-based Conference Board reported yesterday that its index of consumer confidence fell to 99.8 in September, the lowest in almost two years, from a revised 105.6 in the previous month. U.S. home resales fell 4.3 percent to an annual rate of 5.50 million in August, the National Association of Realtors said yesterday.

Foreign-exchange trading rose 65 percent to a record $3.2 trillion a day on average, led by growth in hedge funds and foreign investors, the Bank for International Settlements said yesterday in its triennial survey.

The increase in the value of transactions from 2004 was the biggest in the survey's 18-year history, the Basel, Switzerland- based BIS said.

Last Updated: September 25, 2007 19:26 EDT