By Stanley White and David McIntyre
Oct. 30 (Bloomberg) -- The dollar traded close to a record low versus the euro before U.S. reports that economists forecast will show declines in housing prices and consumer confidence.
Signs of economic weakness may bolster speculation the Federal Reserve will cut borrowing costs this week by more than a quarter-percentage point to prevent the biggest housing slump in 16 years from triggering a recession. The dollar is trading near an all-time low against a basket of six currencies.
``The dollar's downtrend seems entrenched for now,'' said John Horner, a currency strategist at Deutsche Bank AG in Sydney. ``The U.S. economy continues to slow and the Fed is likely to cut rates.''
The dollar traded at $1.4415 per euro at 9:18 a.m. in Tokyo from $1.4425 late in New York yesterday, when it reached $1.4438, the lowest since the European currency's debut in January 1999.
It traded at $1.0484 per Canadian dollar after touching $1.0509 yesterday, the weakest since 1960, and was at 92.27 cents per Australian dollar, after yesterday sinking to 92.72 cents, the lowest since April 1984. The U.S. currency was at 114.68 yen from 114.66.
The U.S. Dollar Index traded on ICE Futures U.S. in New York was at 76.88 after falling to 76.78 yesterday, the lowest since its inception in 1973. The index tracks the dollar against six major currencies including the euro and the yen.
Home prices in 20 U.S. metropolitan areas probably fell 4.2 percent in the 12 months through August, the most on record, according to the median forecast in a Bloomberg News survey. The S&P/Case-Shiller home-price index is scheduled for release at 9 a.m. in New York.
Consumer Confidence
The Conference Board may say today that its index of consumer confidence declined to 99 this month, the lowest since November 2005, from 99.8 a month earlier, according to a separate Bloomberg News survey.
The Fed cut its target rate for overnight bank loans by a half-percentage point Sept. 18 to 4.75 percent, the first reduction since 2003, after losses from subprime mortgage investments roiled credit markets.
Interest-rate futures traded on the Chicago Board of Trade show a 98 percent chance the Fed will lower the rate by a quarter-percentage point to 4.50 percent tomorrow. On Oct. 26, traders saw a 92 percent chance of a quarter-point cut this month and an 8 percent probability of a half-point reduction.
``A housing slump, exemplified by falling housing prices, will keep dragging down the U.S. economy and the dollar,'' said Kenichiro Fujita, manager of Aozora Bank Ltd.'s derivatives marketing group in Tokyo. ``This situation may continue for two or three years.''
The U.S. currency may fall to 113.70 yen today, Fujita said.
Gross on Fed
Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co., wrote in a report published on the firm's Web site yesterday that he expects the Fed to lower benchmark interest rates to 3.5 percent to avoid a recession.
Gross, who manages the $106.5 billion Pimco Total Return Fund in Newport Beach, California, has predicted for more than a year that the Fed will lower rates in 2007.
A government report this week may show job growth is slowing. The U.S. economy may have added 80,000 non-farm jobs this month after an addition of 110,000 in September, according to the median estimate of economists surveyed by Bloomberg. The government reports the data on Nov. 2.
The European Central Bank will keep its key rate at 4 percent at a Nov. 8 meeting, according to the median forecast in a Bloomberg News survey.
Yen Gains Limited
Gains in the yen against the dollar may be limited by speculation the Bank of Japan will lower its economic forecasts in a semiannual report tomorrow after keeping rates unchanged.
The BOJ will keep its benchmark rate at 0.5 percent, the lowest among major economies, according to all 45 economists surveyed by Bloomberg News. The yen has slid against 14 of the 16 most-active currencies in the past year as speculators borrowed it to purchase higher-yielding assets in carry trades.
Yen Carry Trades
``Investors will continue to earn money on the yen carry trade,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The BOJ may downgrade its economic outlook. There's no reason to buy yen.''
The central bank's semiannual outlook report, to be published at 3:30 p.m. in Tokyo tomorrow, will show the nine board members' forecasts for the economy and prices for the current fiscal year and the next.
Consumer prices excluding fresh food will be unchanged in the year ending March and rise 0.3 percent next year, according to the median estimate of 15 economists surveyed by Bloomberg News. The economy will expand 1.7 percent this year and 2.1 percent in the next, the survey shows. All estimates except for next year's growth are lower than the BOJ's April prediction.
The yen traded at 165.39 against the euro from 165.38. It may weaken to 165.70 and 115 against the dollar today, Soma said.
In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency market moves erase those profits.
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