Dollar Erases Gains Versus Euro as Consumer Confidence Drops

By Min Zeng

Bloomberg -- The dollar erased its gains versus the euro and yen after a report showed U.S. consumer confidence this month fell more than economists forecast.

The data may bolster speculation the Federal Reserve will cut borrowing costs tomorrow by a quarter-percentage point to prevent the biggest housing slump in 16 years from triggering a recession.

The U.S. currency traded at $1.4422 per euro at 10:07 a.m. in New York from $1.4425 yesterday, when it reached $1.4438, the weakest since the European currency's debut in January 1999. The dollar bought 114.67 yen from 114.66.

The Conference Board's index of consumer confidence declined to 95.6 this month from 99.5 a month earlier. It compared with the median forecast of 99 in a Bloomberg News poll.

The Fed cut its target rate for overnight bank loans by a half-point on Sept. 18 to 4.75 percent, the first reduction since 2003, after losses from subprime mortgage investments roiled credit markets. The dollar has dropped against all 16 of the most-actively traded currencies since then, losing 2.9 percent against the euro.

Interest-rate futures traded on the Chicago Board of Trade show a 92 percent chance the Fed will lower its benchmark rate by a quarter-percentage point to 4.50 percent tomorrow.

The dollar gained earlier after a Wall Street Journal report today said the Fed may not lower the rates, pushing some investors to trim bets against the U.S. currency. Rate cuts can hurt the dollar by decreasing returns on deposits in the currency.

To contact the reporters on this story: Min Zeng in New York at mzeng2@bloomberg.net .