Dollar May Extend Drop on Bets Fed Will Make Deeper Rate Cuts

Bo Nielsen and Ye Xie
Bloomberg
Tuesday, March 25, 2008

The dollar may decline a second straight day against the euro and yen as traders bet the Federal Reserve will cut its target lending rate by as much as a half- percentage point next month to revive economic growth.

The U.S. currency dropped the most since January 2006 against the euro yesterday after a private report showed consumer confidence fell more than forecast in March, raising concern that the Fed won't be able to avert a recession. A government report today is forecast to show sales of new homes in the U.S. declined last month to the lowest level since 1995.

``The dollar is on the defensive,'' said Nick Bennenbroek, head of currency strategy at Wells Fargo Bank in New York. ``It's a quite difficult environment for the dollar and the U.S. economy.''

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Against the euro, the dollar traded at $1.5649 at 6 a.m. in Tokyo, after dropping 1.5 percent yesterday. The dollar traded at 99.99 yen, following a decline of 0.8 percent. The euro traded at 156.49 yen, after rising 0.7 percent.

The U.S. currency last week posted its first weekly gain against the euro in a month on speculation the Fed's moves to revive lending among banks would restore confidence in the economy. The Fed on March 18 cut the target lending rate by 0.75 percentage point to 2.25 percent, less than economists forecast.

``The market is taking a reality check: No, nothing has changed,'' said Samarjit Shankar, director of global strategy for the foreign-exchange group in Boston at Bank of New York Mellon, the world's largest asset custodian, with oversight of $23.1 trillion. ``The economy in the U.S. will deteriorate further.''

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