`Unprecedented' Dollar Rise Not Over, Lehman Says: Chart of Day

By Valerie Rota

Aug. 26 (Bloomberg) -- The dollar's rally over the past month is ``close to unprecedented'' in the 35 years since the currency was decoupled from gold and will have room to rise on bets the European Central Bank will begin cutting borrowing costs, according to Lehman Brothers Holdings Inc.

The CHART OF THE DAY shows the four-week rate of change in the Federal Reserve's trade-weighted U.S. dollar index since 1973 and the 6.3 percent gain through Aug. 15, the second-largest increase.

``The ECB is going to start cutting early next year -- in January,'' said Steven Englander, a currency strategist at Lehman in New York. ``Right now, the first ECB cut isn't priced in to the market until July. We are significantly more aggressive in terms of thinking how the ECB is going to respond to weaker growth and lower inflation.''

The dollar will rise to $1.43 per euro by year-end and strengthen to $1.40 by the end of the first quarter, Englander said. The dollar recently traded at $1.4757 in Tokyo.

The ECB left its main refinancing rate at 4.25 percent on Aug. 7, when President Jean-Claude Trichet said growth will be ``particularly weak'' through the third quarter.

To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net