Dollar Falls to Record Low Versus Euro Before Fed Rate Meeting

The dollar fell to a record low against the euro on signs a slump in housing is hurting the U.S. economy, bolstering the case for the Federal Reserve to lower interest rates next week.

The U.S. currency has weakened three straight weeks on speculation the housing recession will spread to consumers and erode corporate earnings. Sales of previously owned homes declined last month by almost twice the rate economists forecast, and consumer confidence dropped to the lowest since May 2006.

The dollar will continue to fall as long as the Fed is cutting interest rates, said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto.

The dollar weakened 0.6 percent this week to $1.4393 per euro. It touched an all-time low of $1.4395 per euro yesterday and declined against 15 of the 16 major currencies this week. The U.S. currency dropped 0.3 percent this week to 114.19 yen.

The U.S. Dollar Index, measuring the dollar's performance against six major peers, has lost 8 percent in 2007 and set a record low of 76.977 on Oct. 26.

Interest-rate futures traded on the Chicago Board of Trade show a 92 percent chance the Fed will lower its benchmark overnight rate a quarter-percentage point to 4.50 percent on Oct. 31, after reducing the rate a half-point on Sept. 18 in the first cut since 2003. Futures show an 8 percent chance of a half-point cut on Oct. 31.

Slowing Economy

A government report on Oct. 31 may show U.S. gross domestic product slowed to an annualized 3.1 percent growth rate last quarter, from a 3.8 percent clip in the prior quarter, according to the median estimate in a Bloomberg News survey.

Sales of previously owned homes fell 8 percent last month, while the median price dropped the most in almost a year, the National Association of Realtors said this week. Countrywide Financial Corp., the biggest U.S. mortgage lender, reported its first quarterly loss in 25 years yesterday as borrowers defaulted.

Oil rose above $92 a barrel for the first time in New York this week, pushing Canada's dollar to the highest since 1974 versus the U.S. dollar.

The yuan had its biggest weekly advance in six weeks, to 7.4877 per dollar, reaching the strongest since China ended a peg to the dollar in July 2005. Finance ministers and central bankers from the Group of Seven major industrialized nations last week called for a faster appreciation in the yuan, which they contend is artificially cheap.

A recovery in global stocks this week gave investors confidence to resume carry-trade bets, where they buy assets in countries with high yields, using loans in low-yielding currencies such as the yen. The Standard and Poor's 500 Index gained 2.3 percent this week, following a 3.9 percent tumble the week before.

The yen fell 0.3 percent this week to 164.34 per euro, and dropped 2.2 percent versus the New Zealand dollar.