Dollar May Extend Drop Against Euro Before Durable-Goods Data

Sept. 26 (Bloomberg) -- The dollar may extend its decline against the euro before a government report forecast by economists to show orders for U.S.-made durable goods decreased last month by the most since January.

The U.S. currency fell to a record low versus the euro for a fourth day yesterday after economic data showed declines in consumer confidence and home resales. Traders have increased bets that the Federal Reserve will cut borrowing costs for a second time this year.

``The market is clearly bearish on the dollar,'' said Paresh Upadhyaya, who helps manage $29 billion in currency assets in Boston at Putnam Investments. Fed policy makers ``focused more on growth than inflation, and clearly they have an easing bias.''

The dollar traded at $1.4144 per euro at 7:27 a.m. in Tokyo after falling yesterday to $1.4154, the lowest since the European currency's debut in January 1999. The dollar traded at 114.71 yen after weakening 0.33 percent yesterday. The dollar will fall to $1.45 per euro and 110 yen by year-end, according to Upadhyaya.

Fed policy makers on Sept. 18 cut the target rate for overnight lending between banks by a half-percentage point to 4.75 percent to prevent the housing slowdown from weakening the U.S. economy. The European Central Bank's target lending rate is 4 percent, and the Bank of Japan's is 0.5 percent, the lowest among industrialized countries.

Futures contracts yesterday showed 94 percent odds of a quarter-percentage point cut to 4.5 percent at the Fed's next meeting on Oct. 31, up from a 72 percent likelihood Sept. 24.

Durable Goods

The Commerce Department will report today that orders for U.S.-made products meant to last several years fell 4 percent in August, according to the median forecast of 74 economists surveyed by Bloomberg News. Demand for durable goods excluding transportation equipment decreased 1 percent, a separate survey of economists indicates. The report is scheduled to be released at 8:30 a.m. in Washington.

The dollar has fallen against 13 out of the 16 most actively traded currencies this quarter, depreciating 4.5 percent against the euro and 7.6 percent versus the yen. For the year, the dollar is down 7.2 percent against the euro and 4 percent versus the yen.

The U.S. currency will rise to $1.38 against the euro by year-end, according to the median of 46 analyst forecasts compiled by Bloomberg News.

The New York Board of Trade's index that compares the dollar with six other major currencies touched 78.213 yesterday, the lowest since September 1992.

Consumer Confidence

The New York-based Conference Board reported yesterday that its index of consumer confidence fell to 99.8 in September, the lowest in almost two years, from a revised 105.6 in the previous month. U.S. home resales fell 4.3 percent to an annual rate of 5.50 million in August, the National Association of Realtors said yesterday.

``This is a renewed setback,'' said Jens Nordvig, a currency strategist in New York at Goldman Sachs Group Inc. ``The fall in consumer confidence is going to put the weak U.S. economy story back in the forefront. We can go to $1.43 very quickly.''

U.S. Treasuries rallied yesterday on consumer and housing data, pushing the two-year note's yield down to 3.97 percent. The two-year German bund yielded 4.01 percent.

Risk Reversal

The one-month risk reversal rate for the euro-dollar reached 0.35 percent on Sept. 24, the highest on a closing basis since April, suggesting traders are willing to buy euro-dollar calls more than puts. A call option gives the right, but not the obligation, to buy euros against the dollar.

Foreign-exchange trading rose 65 percent to a record $3.2 trillion a day on average, led by growth in hedge funds and foreign investors, the Bank for International Settlements said yesterday in its triennial survey.

The increase in the value of transactions from 2004 was the biggest in the survey's 18-year history, the Basel, Switzerland- based BIS said.