Dollar VS Euro NEWS

Dollar Little Changed Versus Euro Before Fed Decision on Rates

June 25 (Bloomberg) -- The dollar was little changed against the euro before the Federal Reserve ends a two-day meeting at which policy makers are forecast to keep the target lending rate at the lowest level in more than three years.

The dollar pared its decline as crude oil prices fell on an unexpected increase in inventories, reducing the need to sell the U.S. currency as a hedge against inflation. Fed Chairman Ben S. Bernanke said on June 9 the central bank would ``strongly resist'' a leap in inflation expectations.

``The Fed will fall short of the most hawkish of expectations,'' said Nick Bennenbroek, head of currency research at Wells Fargo & Co. in New York. ``The dollar will come under a little bit of pressure.''

The dollar traded at $1.5575 per euro at 10:51 a.m. in New York, compared with $1.5568 yesterday. The dollar rose 0.2 percent to 108.07 yen, from 107.82. The euro increased 0.3 percent to 168.32 yen, from 167.85, and touched 168.46, the strongest level since July 23.

The Norwegian krone advanced to a two-week high against the dollar after Norges Bank increased its target lending rate to 5.75 percent. The krone strengthened 0.3 percent to 5.0989 per dollar and touched 5.0854, the highest level since June 10. The central bank's decision had been expected by nine of the 20 economists surveyed by Bloomberg News.

The U.S. currency has fallen from a one-month high of $1.5303 per euro reached on June 13, four days after Bernanke said economic risks have faded and accelerating inflation ``would be destabilizing for growth.''

Fed Rate Outlook

The Fed will keep the 2 percent target lending rate unchanged today, all 102 economists surveyed by Bloomberg News predict. The chance policy makers will increase borrowing costs by a quarter-percentage point is 10 percent, compared with 14 percent odds a week ago, futures contracts on the Chicago Board of Trade show. The chance the Fed will raise the rate by at least a quarter-percentage point in August is 39 percent.

New home sales fell to an annual pace of 512,000 in May, from a revised 525,000 the prior month, the Commerce Department reported today in Washington.

Orders for durable goods excluding transportation items dropped 0.9 percent in May after a revised 1.9 percent increase the prior month, the Commerce Department also said. The median forecast of 38 economists surveyed by Bloomberg News was for a decrease of 1 percent.

`Growth Concerns'

``Due to the underlying growth concerns, it will be very difficult for the Fed to hike rates this year,'' said Matthew Strauss, a currency strategist at RBC Capital Markets in Toronto. ``That means the market has gotten a little bit ahead of itself pricing in rate increases, and the dollar will come under pressure.''

The dollar has gained 1.3 percent against the euro this quarter as traders bet the economic slowdown sparked by the collapse of the subprime-mortgage market will spread to Europe as the U.S. recovers.

European Central Bank President Jean-Claude Trichet left open today the option of raising interest rates again after July to contain accelerating inflation. He told the European Parliament in Brussels that inflation in the euro area has ``intensified further in recent months'' and that the bank is in a state of ``heightened alertness.''

The euro may rise to a record 169 yen should it stay above its five-day moving average, said Masashi Hashimoto, a senior currency analyst at Bank of Tokyo-Mitsubishi UFJ Ltd.

The current five-day moving average is 167.59 and represents a level of so-called support, said Tokyo-based Hashimoto, citing technical charts traders use to predict price movements. The euro reached a record high of 168.99 yen on July 23. Support is an area where buy orders may be clustered.

``Should the euro stay beyond its five-day moving average, and should the average show the upward trend, the euro will have a high chance to reach its record high,'' Hashimoto said.