Dollar Falls

Dollar Falls to Record Low Against Euro on Inflation, Fed View

Sept. 28 (Bloomberg) -- The dollar fell to a record low against the euro as evidence of slowing inflation encouraged traders to speculate that the Federal Reserve will cut borrowing costs a second time this year.

The government reported today that core consumer prices last month had their smallest annual gain since February 2004. The Fed on Sept. 18 reduced the target rate for overnight lending between banks a half-percentage point to 4.75 percent.

``The dollar was sold on a significantly bearish outlook,'' said Robert Sinche, head of global currency strategy in New York at Bank of America Corp. ``Now the dollar has been pushed to an extreme level.''

The dollar fell 0.3 percent to $1.4198 per euro at 9:42 a.m. in New York after touching $1.4208, the lowest since the European currency debuted in January 1999. It was the seventh straight day the dollar broke a record. The dollar decreased 0.4 percent to 115.23 yen.

Some traders sold the euro to prevent it from trading above $1.4250, according to Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. Traders place preset orders to prevent a currency from breaking through a range and rendering options bets worthless.

The next level of resistance is $1.4536 per euro, the equivalent of the dollar's record low of 1.3455 deutsche marks in March 1995, he said.

Fed Rate Outlook

Futures contracts today showed 86 percent odds the central bank will lower its target by a quarter-percentage point to 4.50 percent at its next meeting Oct. 31, compared with 14 percent a month ago. The European Central Bank's key borrowing cost is 4 percent, while the Bank of Japan's is 0.5 percent.

The Commerce Department said today that its price gauge tied to spending patterns and excluding food and energy costs, the Fed's preferred measure, rose 1.8 percent from August 2006 after a 1.9 percent annualized increase the previous month.

The New York-based Conference Board reported on Sept. 25 that its index of consumer confidence fell to 99.8 in September from a revised 105.6 in the previous month. Purchases of new homes fell to an annual rate of 795,000 last month from a revised 867,000 in July, the lowest in more than seven years, the Commerce Department reported yesterday.

The yen rose earlier against the dollar on speculation losses related to subprime mortgage defaults will spread in the U.S. and Europe.

The Financial Times said Northern Rock Plc, a U.K. bank bailed out by the Bank of England, borrowed a further 5 billion pounds ($10 billion) to stay in business.

The Bank of England agreed to bail out Newcastle, England- based Northern Rock on Sept. 14 after it requested an emergency credit line, as losses on U.S. mortgages to people with poor credit made banks reluctant to lend.