By Stanley White and Kosuke Goto
(Bloomberg) -- The dollar fell to a record low against the
euro on speculation Federal Reserve Chairman Ben S.
Bernanke will tell a congressional hearing that a U.S.
housing slump threatens to slow economic growth.
The U.S. dollar fell against 13 of the 16 most-active
currencies as traders bet the central bank will cut its
benchmark interest rate further after the first reduction
since June 2003 on Sept. 18. The currency dropped to the
lowest in nine years against the Indian rupee and a
six-week low against the Australian dollar.
``We're going to see a continuation of U.S. dollar
weakness,'' said Greg Gibbs, a strategist at ABN Amro
Holding NV in Sydney. ``Bernanke will talk about the
housing market and how that could flow through to the rest
of the economy. The possibility of more U.S. rate cuts is
completely open.''
The U.S. currency fell to a record low of $1.4005 against
the euro before trading at $1.3995 as of 7:29 a.m. in
London from $1.3957 late in New York yesterday. It will end
the year around $1.42, Gibbs forecast. The dollar was at
115.80 yen from 116.10 yesterday.
The currency also dropped to 86.17 U.S. cents versus the
Australian dollar, the highest since Aug. 9, from 85.66 in
New York. It declined as much as 0.8 percent against the
rupee to 39.90 per dollar, the lowest since May 14, 1998.
Bernanke's Testimony
The dollar has fallen to the weakest in 15 years against an
index of six major currencies that includes the Japanese
yen and British pound after Fed policy makers lowered the
target for the overnight lending rate between banks by half
a percentage point to 4.75 percent. The European Central
Bank's benchmark is 4 percent.
Bernanke will testify on the mortgage market at 10 a.m. in
Washington before the House Financial Services Committee.
Futures contracts show 80 percent odds of a quarter-point
cut to 4.5 percent at the Fed's next meeting on Oct. 31.
Reports today will show first-time applications for jobless
claims in the U.S. rose last week and a measure of the U.S.
economy's future outlook fell in August, according to
separate Bloomberg News surveys.
``The Fed will cut the rate by 25 basis points to 4.5
percent,'' said Tetsuhisa Hayashi, chief currency trader in
Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of
Japan's largest lender by assets. ``Concern over the
slowdown in the U.S. will cause dollar selling.''
The U.S. currency may fall to 105 yen and $1.45 per euro by
year-end, Hayashi said.
Saudi Arabia
The dollar may accelerate losses against the euro on
speculation Saudi Arabia will abandon its peg to the U.S.
currency.
The Middle East nation failed to lower its interest rates
in line with the Fed, the Daily Telegraph reported. This
may pave the way for Saudi Arabia and other countries in
the region to scrap their currency pegs as a weak dollar
stokes inflation, the newspaper said.
``The Telegraph article is saying the Middle East might
want to start selling dollars because of inflationary
risk,'' said Luke Waddington, head of interbank currency
sales in Tokyo at Royal Bank of Scotland Group Plc. ``Once
the market reads that, the market will probably want to buy
euros and see if they can move it higher.''
Defending Options
The dollar's losses may be limited against the euro on
speculation investors will buy the U.S. currency to protect
options that would become worthless should it weaken beyond
triggers at $1.40. Investors use triggers to reduce the
premium paid for currency options that grant the right to
buy or sell a currency at a specific level on a
predetermined date.
``Defensive dollar buying is picking up in intensity,''
said Shinichi Hayashi, foreign-exchange trader at Shinkin
Central Bank in Tokyo. ``I don't think the dollar can fall
very far against the euro.'' The dollar may rise to $1.39
per euro today, he said.
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