The dollar headed for a weekly decline against the euro on speculation
the Federal Reserve will hold off from raising interest rates next week
to support the U.S. economy.
The currency is also poised to drop this week versus the yen after a
contraction in U.S. manufacturing prompted traders to pare bets for a
rate increase on June 25. The euro was set for a sixth weekly advance
against the yen, its longest in more than a year, on speculation
European Central Bank President Jean-Claude Trichet will signal in a
speech today that policy makers may raise borrowing costs next month.
``The dollar's decline comes as hawkish sentiment wanes,'' said Paul
Robinson, a London-based foreign-exchange strategist at Barclays
Capital and a former Bank of England economist. ``We don't actually
expect the Federal Reserve to raise rates for the next few months.''
Futures on the Chicago Board of Trade showed a 12 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 Philadelphia Fed reported yesterday that its general economic
index, a gauge of manufacturing, dropped to minus 17.1 in June, from
minus 15.6 the previous month. Data this week also showed U.S. housing
starts fell in May to a 17-year low and industrial production
unexpectedly declined.
``Monetary policy expectations will prevent any rapid declines in the
euro versus the dollar and the yen,'' said Masafumi Yamamoto, head of
foreign exchange strategy for Japan at Royal Bank of Scotland in Tokyo
and a former Bank of Japan currency trader. ``A July rate hike is a
done deal.''