Dollar Heads for Biggest Weekly Drop Against Euro in a Month

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By Agnes Lovasz and Kosuke Goto

The dollar headed for its biggest weekly decline in a month against the euro as traders raised bets the Federal Reserve will cut interest rates to avert a recession.

The currency was also poised to drop versus the British pound and the Swiss Franc before a U.S. government report today that will probably show growth in consumer spending slowed. The yen fell against the Australian and New Zealand dollars as gains in stocks prompted traders to increase holdings of higher- yielding assets funded with loans from Japan and Switzerland.

``There are further declines ahead for the dollar,’’ said Antje Praefcke, a Frankfurt-based currency strategist at Commerzbank AG, Germany’s second-largest bank. ``The U.S. is probably facing a recession and the Fed will cut rates further. There are ongoing problems with the financial sector. All of this is not good news for the dollar.’’

The dollar traded at $1.5763 per euro at 9:15 a.m. in London, from $1.5779 yesterday in New York and $1.5431 a week ago. The U.S. currency rose to 100.18 yen, from 99.65 yesterday and 99.58 at the end of last week. Japan’s currency weakened to 157.91 per euro, from 157.21 yesterday and 153.55 on March 21. The dollar, which dropped 2.2 percent this week, will trade in the $1.5750 to $1.58 range today before falling to a record $1.60 within the next two weeks, Praefcke predicted.

New Zealand’s dollar advanced after a statistics bureau report showed the nation’s economic growth accelerated at the fastest annual pace in three years in the fourth quarter. The currency rose to as high as 80.68 U.S. cents, before trading at 80.44 cents, from 80.35 cents. It also gained 0.6 percent to 80.50 yen. The Australian dollar strengthened 0.2 percent to 92.08 U.S. cents and 0.5 percent to 92.04 yen.

Pound, Asian Currencies

The pound fell to a record 79.14 pence against the euro after an industry report showed consumer confidence slumped to a 15-year low this month.

The Taiwan dollar dropped 0.8 percent to NT$30.389 on speculation the central bank will curb its gains to protect exporters, after the biggest advance this quarter since June 1987. The bank probably intervened at least twice yesterday, according to a Credit Suisse Group report.

South Korea’s won fell 0.5 percent to 992.97 per dollar after a central bank report showed a third consecutive current- account deficit and Yonhap news agency reported that North Korea had fired short-range missiles.

``The North Korean missiles had a limited impact,’’ said Tetsuhisa Hayashi, chief manager of foreign-exchange trading in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest publicly traded lender. ``It didn’t launch missiles toward Japan, but into the sea between China and Korea.’’

Carry Trades

The yen dropped against the Australian dollar as the MSCI Asia-Pacific Index of regional stocks rose 1.1 percent. In carry trades, speculators get funds in a country with low borrowing costs and invest in one with higher returns, earning the spread between the two. The risk is currency moves erode those profits.

``Gains in stocks are prompting yen sales,’’ said Hayashi.

Lower currency volatility may also encourage carry trades. Implied volatility on one-month dollar-yen options fell to 16.50 percent, from 16.65 percent yesterday. Traders quote the gauge of expectations for future currency swings as part of pricing options.

The Dollar Index traded on ICE Futures in New York, which tracks the currency against those of six trading partners, was at 71.78, from 71.66 yesterday and 72.71 a week ago. It reached a record low of 70.698 on March 17.

The dollar has fallen 0.7 percent against the pound this week, and traded at $1.9954, from $2.0072 yesterday. It has also declined 1.1 percent versus the Swiss franc, and traded at 0.9973 franc, from 0.9941 in New York.

Dollar Drop

The U.S. dollar has fallen 8 percent against the euro this year, heading for its sixth straight quarterly loss and the biggest since 2004 as the Fed slashed interest rates by 3 percentage points since September to 2.25 percent. Personal spending rose 0.1 percent last month, the smallest gain in more than a year, a Commerce Department report will show today, according to a Bloomberg News survey.

Futures on the Chicago Board of Trade show traders increased bets the Fed will lower its target rate by a half-percentage point on April 30. The futures showed a 42 percent chance of a reduction to 1.75 percent, compared with 36 percent the previous day. The remaining bets were for a cut of a quarter-point.

The yen remained lower against the dollar after a government report showed Japan’s consumer prices rose at the fastest pace in a decade in February, prompting some investors to cut bets the Bank of Japan will lower its 0.5 percent benchmark interest rate this year.

There is a 54 percent chance the central bank will reduce the rate to 0.25 percent by December, according to calculations by JPMorgan Chase & Co. using interest-rate swaps. The odds were down from 71 percent on March 19.