The euro dropped the most versus the dollar in more than a week as German business confidence fell in June to the lowest level since 2005, reducing bets the European Central Bank will increase borrowing costs this year.
``It's becoming clear that the ECB can't tighten rates aggressively from here,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``That will temper the euro going forward.''
The ECB will increase the 4 percent main refinancing rate by a quarter-percentage point by the end of September, while the Federal Reserve's target will remain at 2 percent, according to the median forecast of economists.
According to a survey of analysts and economists, the European currency may trade between $1.53 and $1.58 through the third quarter and fall as low as $1.47 by the end of 2008. That compares with a median year-end prediction of $1.50.
The greenback gained 1.7 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.