Dec. 30 (Bloomberg) -- The dollar declined against the euro on speculation the Federal Reserve’s zero interest rate will weigh on demand for the greenback.
The currency also fell versus the yen as a report showed U.S. consumer confidence dropped this month to a record low, adding to concern the recession is deepening. The euro rose to near an all-time high against the pound, heading closer to parity, on bets the Bank of England will cut interest rates faster than the European Central Bank.
“With the Fed reverting to non-conventional monetary policy, the whole notion of a strong dollar goes out the window,” said Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., a unit of Canada’s second-largest bank.
The dollar slid 1.6 percent to $1.4154 per euro at 10:06 a.m. in New York, from $1.3927 yesterday, when it reached $1.4364, the weakest since Dec. 18. The decline pared this year’s advance to 3 percent. The euro gained 1.2 percent to 127.74 yen from 126.26, trimming this year’s loss to 22 percent. The dollar dropped 0.5 percent to 90.26 yen from 90.68, extending its 2008 loss to 19 percent.
Russia’s ruble strengthened against the dollar for the first time in a week, increasing 0.9 percent to 29.3282 after crude oil prices rose yesterday. The ruble fell 0.8 percent to 41.5209 against the euro and was little changed at 34.8189 versus a currency basket made up of 55 percent dollars and 45 percent euros.
Bank Rossii
Bank Rossii allowed the ruble to decline more than 1 percent against the basket 12 times since Nov. 11, according to a central bank official who declined to be identified. The ruble dropped 20 percent against the dollar since the beginning of August on a decline in crude oil prices this year.
Brazil’s real was the biggest gainer against the U.S. dollar among the 16 most actively traded currencies tracked by Bloomberg, climbing 3.4 percent to 2.3182 on speculation exports will rebound as global governments act to boost growth.
The euro rose for a seventh day against the pound, increasing 1 percent to 97.65 pence, its longest stretch of gains since early September. It reached 98 pence yesterday, the highest since the 15-nation currency’s 1999 debut.
Charts used to predict price movements show the currencies may reach parity this week, according to Ashraf Laidi, chief foreign-exchange analyst at CMC Markets in London.
‘Euro Strength’
“Euro strength is creeping across the board, hitting a fresh all-time high versus the pound, paving the path for parity as early as this week,” Laidi wrote in a research note yesterday. “One of the several factors making parity possible is remaining technical strength in the euro-dollar.”
The single currency may “retest” its 200-day moving average of about $1.4650, which is a 61.8 percent Fibonacci retracement of the decline from the record high of $1.6037 on July 15 to the Oct. 28 low of $1.2330, Laidi said. Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.
The dollar depreciated versus the euro and the yen as the New York-based Conference Board’s index of consumer confidence fell to an all-time low of 38 this month from 44.7 in November. The group started keeping records in 1967.
“The current environment is inconsistent with further dollar strength,” David Powell, a currency strategist in London at Bank of America Corp., said in an interview on Bloomberg Radio. The dollar may weaken to $1.48 by the end of March, Powell said.
Fed’s Rate Cut
The Fed cut its benchmark interest rate this month to a range of zero to 0.25 percent for the first time and shifted its focus to debt purchases in an effort to revive the economy.
The U.S. Treasury committed $6 billion to support GMAC LLC, the financing arm of General Motors Corp., widening the government’s effort to keep the largest U.S. automaker out of bankruptcy, according to a statement issued yesterday.
Crude oil for February delivery fell 1.1 percent to $39.60 a barrel on the New York Mercantile Exchange after advancing 6.1 percent yesterday on speculation Israel’s conflict with Hamas may disrupt Mideast oil supply.
To contact the reporters on this story: Jamie McGee in New York at jmcgee8@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net
Last Updated: December 30, 2008 10:09 EST
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