Dollar Declines From 5 1/2-Month High on Bets Gains Excessive

By Ye Xie

Aug. 12 (Bloomberg) -- The dollar dropped from a 5 1/2- month high versus the euro on speculation the currency's recent gains are too fast to be sustained.

``The dollar's rally was overextended,'' said Steve Butler, director of foreign-exchange trading at Scotia Capital Inc. in Toronto. ``It has been such a one-way street. The market was caught the wrong way.''

The dollar fell 0.2 percent to $1.4936 per euro at 9:02 a.m. in New York, from $1.4909 yesterday. It touched $1.4816, the strongest level since Feb. 26. The dollar decreased 0.2 percent to 109.87 yen, from 110.06 yesterday, when it touched the seven-month high of 110.40. The euro was unchanged at 164.10 yen after reaching 163.26 yen, the lowest since June 5.

The euro's 14-day relative strength index against the dollar fell to 22.40. A reading below 30 suggests a change in price direction is imminent.

To contact the reporter on the story: Ye Xie in New York at yxie6@bloomberg.net