Dollar continues to decline

THE dollar fell against the euro and yen for a fifth day in six yesterday as traders said a Federal Reserve decision to leave interest rates at a 41-year low will underscore how weak the US economy is.

Almost all of the dollar's 7.5% decline against the euro this year, which sent it to a four-year low, has come in the past six weeks.

Analysts expect the European Central Bank to leave its benchmark rate at a meeting tomorrow at 2.5%, double the Fed's 1.25% rate.

That differential has slowed investment in Treasuries, taking away a source of funding of the US's $1.5 billion daily current account gap.

"The big picture for the dollar remains quite bearish," said Daniel Katzive, a currency strategist at UBS Warburg LLC, the second-biggest trader in the $1.2 trillion-a-day currency market.

The decline "reflects the difficulty of financing a large current account deficit when US yields are so low and foreign demand for US equities is questionable." The dollar slid to $1.1356 per euro at noon in New York, its weakest since February 1999. Katzive forecasts the dollar will weaken to $1.20 per euro by yearend. The dollar fell to 117.93 yen from 118.54.

The US currency's recent slide brings its losses in the past 12 months to 19% as evidence has mounted that the world's biggest economy is slumping. The unemployment rate rose to 6%, matching an eight-year high, and manufacturing contracted the most since October 2001 in April, reports last week showed.

All but three of the 79 economists surveyed by Bloomberg News predict Fed policy makers will keep rates unchanged. They are slated to announce a decision at 2.15pm New York time.