Dollar Falls to 3-Week Low Against Euro on Recession Concern

The dollar fell to a three-week low against the euro on speculation the Federal Reserve will cut borrowing costs next month to avert a recession.
The U.S. currency declined for a second straight week against the euro after a report showed manufacturing in the Philadelphia region contracted the most last month since 2001. Currencies from commodity exporters such as Brazil, Australia and New Zealand gained against the dollar this week after crude oil and gold rose to records.
``The market is seeing increasing risks of a recession, and more Fed rate cuts are coming,'' said Michael Malpede, a senior currency analyst in Chicago at Man Global Research, part of Man Group Plc. ``It's not a good environment for the dollar.''
The dollar fell 1 percent this week to $1.4827 per euro, and touched the weakest level since Feb. 1. The dollar declined 0.6 percent this week to 107.17 yen from 107.82 on Feb. 15. The euro rose to 158.99 yen, from 158.25 a week earlier.
Brazil's real strengthened to more than 1.70 per dollar for the first time since May 1999 yesterday on speculation that soaring commodity prices and investment in local financial assets will accelerate. Crude oil futures increased to an all-time high of $101.32 a barrel this week.
Australia's dollar reached 92.51 U.S. cents yesterday, the highest level since Nov. 9, and the New Zealand dollar rose to a seven-month high of 81 cents.
Growth Push
The U.S. currency fell 0.7 percent against the euro on Feb. 21, the most in three weeks, after the Federal Reserve Bank of Philadelphia's general economic index declined to minus 24, from minus 20.9 in January.
``The Fed is pushing growth at any cost,'' said Axel Merk, who helps manage the $285 million Merk Hard Currency Fund in Palo Alto, California. ``The dollar will continue to weaken.''
The Fed has lowered its target for the benchmark overnight interest rate by 2.25 percentage points since Sept. 18 to 3 percent as the housing slump threatens to trigger a recession.
Sales of existing homes in the U.S. probably fell for the 10th time in 11 months in January, to an annual rate of 4.8 million, from 4.89 million the previous month, according to the median forecast in a Bloomberg News survey. The National Association of Realtors releases the report on Feb. 25.
Fed Chairman Ben S. Bernanke will testify before Congress on Feb. 27-28, giving his semiannual monetary policy report. Fed officials cut their 2008 U.S. growth forecasts on Feb. 20 and said in the minutes of their last meeting that rates should be held down ``for a time.''
Euro, Fed Futures
Futures on the Chicago Board of Trade show traders see a 96 percent chance of a half-point cut in the Fed's target rate to 2.5 percent on March 18. The balance of bets is on a cut of 0.25 percentage point.
Hedge funds and other large speculators this week increased their futures bets that the euro will gain against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed yesterday.
The difference in the number of wagers on an advance in the euro compared with those on a drop -- so-called net longs -- was 14,730 on Feb. 19, rising from a two-year low of 10,295 a week earlier, the data showed.
The euro got a boost this week as rising inflation cooled speculation the European Central Bank will lower its benchmark rate from 4 percent. Inflation in the 15-nation euro region will average 2.6 percent this year, the highest since the common currency's inception in 1999 and up from a previous estimate of 2.1 percent, the European Commission said.
At 3.33 percent, the two-year German bund yields 1.32 percentage points, or 132 basis points, more than similar- maturity Treasuries. The yield gap touched 139 basis points on Jan. 22, the widest since 2002