The dollar posted its biggest weekly drop against the euro in almost three months on speculation the Federal Reserve will delay increasing interest rates to protect the U.S. economy.
The
greenback dropped last week versus all of the other major currencies as
Lehman Brothers Holdings Inc. said losses at Fannie Mae and Freddie
Mac, the two largest U.S. mortgage- finance companies, may mount. The
euro was headed for a sixth weekly advance against the yen, the longest
stretch in more than a year, as German producer price inflation
accelerated.
``The re-emergence of financial concern
places a question mark on the Fed's ability to raise interest rates,''
said Matthew Strauss, a senior currency strategist in Toronto at RBC
Capital Markets Inc., a unit of Canada's biggest bank by assets. ``The
possibility of a revisit to $1.60 is still in the cards.''
The
U.S. currency has fallen 1.5 percent against the euro in the week, its
biggest drop since March 28. The dollar rose 2.5 percent last week, the
most since 2005, and touched a one-month high of $1.5303 per euro after
Fed Chairman Ben S. Bernanke said economic risk had faded, raising bets
that the central bank would increase borrowing costs this year to slow
inflation.
The dollar decreased 0.6 percent against the
yen this week, while the euro increased 0.9 percent versus Japan's
currency in the longest winning streak since May 2007.
The
Australian and New Zealand dollars headed for weekly advances on
speculation the countries will maintain their yield advantage over the
U.S. The target lending rates of 7.25 percent in Australia and 8.25
percent in New Zealand compare with 2 percent in the U.S.
Futures
on the Chicago Board of Trade showed a 10 percent chance the Fed will
increase the target rate for overnight lending between banks by a
quarter-percentage point on June 25, compared with 22 percent odds a
week ago. The odds of an increase in August also fell.
Fannie Mae and Freddie Mac,
the two largest sources of U.S. home loans, may post further losses in
the second quarter as the housing market continues to deteriorate,
Lehman said in a note to clients today. Moody's Investors Service
stripped bond insurers MBIA Inc. and Ambac Financial Group Inc. of
their Aaa ratings yesterday.
Crude oil for
July delivery climbed 2.8 percent to $134.60 a barrel today as the
weaker dollar made commodities more attractive as a currency hedge and
the New York Times reported that Israel rehearsed for a potential
bombing attack on nuclear targets in Iran. Oil reached a record $139.89
on June 16.
The correlation of the
dollar versus the euro and oil prices is minus 0.93 for the past year,
indicating they move in the opposite direction 93 percent of the time,
according to Bloomberg calculations based on value changes.
German
producer-price inflation, an early indicator of price pressures in the
economy, accelerated to the fastest pace in almost two years in May on
energy costs. Prices for goods from newsprint to plastics increased 6
percent from a year earlier, the most since July 2006, the Federal
Statistics Office in Wiesbaden said today.
European Central Bank President Jean-Claude Trichet said on June 5 that the bank may increase its 4 percent main refinancing rate by a quarter-percentage point next month.
``Monetary
policy expectations will prevent any rapid declines in the euro versus
the dollar and the yen,'' said Masafumi Yamamoto, head of
foreign-ex