By Stanley White
Aug. 29 (Bloomberg) -- The dollar fell against the euro, paring its biggest monthly gain since Europe's single currency debuted in 1999, on speculation a U.S. government report will show growth in consumer spending slowed.
The greenback also weakened against the yen as oil prices climbed on signs a storm will disrupt oil production in the Gulf of Mexico, increasing costs for the world's largest energy consumer. The British pound traded near a record low against the euro after a central bank policy maker said lower interest rates are needed to avoid a recession.
``The dollar has a weak bias,'' said Osao Iizuka, head of foreign exchange trading at Sumitomo Trust & Banking Co. in Tokyo, Japan's sixth-largest publicly traded lender. ``The unhealthy state of the U.S. economy is dictating the tempo for the dollar. A rise in oil prices is also a negative factor for growth.''
The U.S. currency declined to 109.13 yen at 7:52 a.m. in London, compared with 109.50 late yesterday in New York and 110.07 on Aug. 22. The dollar fell to $1.4732 per euro, compared with $1.4706 late yesterday. The euro was at 160.74 yen from 161.04 yesterday. The dollar may drop to $1.4780 per euro today, Iizuka forecast.
The dollar is set for a 5.9 percent gain against the euro this month, supported by a 5.8 percent decline in oil prices and a government report showing the U.S. economy grew faster than estimated in the second quarter. The euro is down 4.5 percent against the yen this month, the largest decline since March 2004, as a slump in German business confidence added to concern European economies will fall into a recession.
South Korea's won fell 0.7 percent to 1,088.90 per dollar and is set for the biggest monthly decline since August 1998 as overseas fund managers dumped local stocks.
U.S. Economy
U.S. personal spending rose 0.2 percent in July after climbing 0.6 percent in June, according to a Bloomberg News survey of economists. Personal income fell 0.2 percent following a 0.1 percent gain, a separate survey showed. The Commerce Department will release the data at 8:30 a.m. in Washington.
Futures on the Chicago Board of Trade show a 22.1 percent chance that the Fed will increase its 2 percent target rate for overnight lending between banks by at least a quarter-percentage point at a Dec. 16 meeting, compared with 64.6 percent odds a month ago. Policy makers next meet Sept. 16.
Crude oil for October delivery rose $1.18 to $116.77 a barrel on concern a tropical storm threatening U.S. oil rigs in the Gulf of Mexico will strengthen into a hurricane. The euro- dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.
Dollar and Oil
``The recent rally in the dollar has likely come to an end,'' said Masahiro Sato, joint general manager of the treasury division at Mizuho Trust & Banking Co. in Tokyo. ``Traders are inclined to sell the dollar today as oil prices inch higher.''
The U.S. currency may fall to 108.50 yen today, he said.
The yen was little changed against the euro after the Japanese government said consumer prices excluding fresh food rose 2.4 percent in July from a year earlier, faster than economists' estimates for a 2.3 percent rise. A separate report showed industrial production rose 0.9 percent last month, counter to economists' expectations for a decline.
Bad to Worse
The pound headed for a 2.5 percent monthly decline versus the euro, the largest since March, after Bank of England policy maker David Blanchflower said yesterday rates need to decline in an interview with Reuters. It was at 80.65 pence per euro from 80.37. It reached a record low of 80.99 pence on April 16.
The pound last stood at $1.8281, on course for a 7.9 percent decline this month, the most since October 1992. The average value of a home in the U.K. fell 10.5 percent in August from a year earlier, Nationwide Building Society said yesterday.
The implied yield on the March short-sterling futures contract fell 26 basis points this month to 5.24 percent. The BOE's benchmark rate is 5 percent.
``The news for sterling has gone from bad to worse,'' analysts led by Hans-Guenter Redeker, the London-based global head of currency strategy at BNP Paribas SA, France's biggest bank, wrote in a research note yesterday. ``Moreover, BOE member Blanchflower delivered dovish comments.''
Investors should sell the pound with a target of $1.82, according to the report.
Traders have pared bets the European Central Bank will raise its 4.25 percent benchmark rate. The implied yield on the Euribor futures contract expiring in September 2009 fell to 4.52 percent from 4.61 percent on Aug. 1. The yield averaged 18 basis points above the ECB rate from 1999 to August 2007.
``The euro will continue to depreciate,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, Britain's third-biggest lender. ``A slowdown in European economies is becoming quite evident. We expect the ECB to keep rates on hold until the second quarter of next year.''
The euro may decline to $1.45 within a month, he said.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
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