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Dollar Falls as Financial Losses Pare Bets on Fed Rate Increase The dollar fell from near a three- week high against the euro as concern U.S. financial company losses will widen led traders to reduce bets that the Federal Reserve will increase borrowing costs in September.   Dollar Falls as Financial Losses Pare Bets on Fed Rate Increase By Ye Xie and Kim-Mai Cutler July 28 (Bloomberg) -- The dollar fell from near a three- week high against the euro as concern U.S. financial company losses will widen led traders to reduce bets that the Federal Reserve will increase borrowing costs in September. The currency dropped for a second day after Minneapolis Fed President Gary Stern told the Financial Times that the U.S. credit crunch will get worse. The pound fell against the dollar and the euro as U.K. house values dropped in July by the most in at least seven years. ``The financial sector is far from being healthy,'' said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. ``The Fed won't be able to raise rates any time soon given what's happening in the credit market. It's very difficult for the dollar to have a sustained rally.'' The dollar fell 0.2 percent to $1.5733 per euro at 10:42 a.m. in New York, from $1.5709 on July 25. It touched $1.5629 on July 24, the strongest level since July 7. The dollar will trade in a range of $1.5650 to $1.5950 in the next few weeks, Serebriakov said. The U.S. currency dropped 0.2 percent to 107.66 yen, from 107.84, after earlier reaching 108.07, the highest since June 26. The euro traded at 169.34 yen, compared with 169.40. It touched the all-time high of 169.96 on July 23. The pound decreased 0.1 percent to $1.9892 after Hometrack Ltd., a London-based research company, said U.K. house values dropped 4.4 percent in July from a year earlier, the biggest annual drop since the index started in 2001. Sterling weakened 0.3 percent to 79.06 pence per euro. Australian Dollar The Australian dollar traded at 95.63 U.S. cents after touching 95.28 cents, the lowest level in almost three months. Australia & New Zealand Banking Group Ltd., the nation's fourth- biggest bank by market value, joined National Australia Bank Ltd., the largest in terms of assets, in warning of increased provisions for non-performing loans. Six months after correctly identifying Australia's dollar as one of the best bets in the foreign-exchange market, Daiwa Asset Management Co., the biggest investor in the nation's debt, predicts that the rally is coming to an end. Daiwa, which holds 4 percent of the government's bonds, expects the currency to close the year at $1. The Aussie touched 98.49 U.S. cents on July 16, the highest since 1983. The credit crunch is likely to last for months and may deteriorate further, Stern of the Minneapolis Fed said in a Financial Times interview. Financial firms have reported $467.9 billion in losses and writedowns since the start of 2007. U.S. Home Prices U.S. home prices in the S&P/Case-Shiller index fell 16 percent in May from a year ago, the most on record, according to the median forecast of 21 economists surveyed by Bloomberg News. The report is due tomorrow. Nonfarm payrolls dropped by 75,000 in July, following a decline of 62,000 in June, according to a separate survey. The Labor Department will release the employment data on Aug. 1. The dollar depreciated to an all-time low of $1.6038 per euro on July 15 on concern financial losses and record oil prices may prolong the economic slowdown in the U.S. ``The dollar is likely to breach $1.60 again in the next three months,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago. ``There's a lot of risk in both the economy and the financial sector.'' Futures traded on the Chicago Board of Trade showed a 40 percent chance the Fed will increase its 2 percent target rate for overnight lending between banks by at least a quarter- percentage point by Sept. 16, compared with 43 percent odds on July 25. Policy makers next meet Aug. 5. `Beginning to Turn' The euro is ``beginning to turn'' higher against the dollar after sustaining $1.56 today, the bottom of an upward trend that started a year ago, wrote Tom Fitzpatrick and Shyam Devani, technical analysts at Citigroup Inc., in a research note to clients today. ``We continue to believe that the uptrend is still in place,'' the analysts wrote. ``A rally back up to the highs and beyond is expected.'' In Germany, GfK AG's index for August, a consumer confidence indicator, declined to 2.1, the lowest since June 2003, from a revised 3.6 in July, the Nuremberg-based market- research company said in a statement today. ``The European economy is facing a major setback,'' wrote Tomoko Fujii, head of Japan economics and strategy at Bank of America Corp. in Tokyo, in a research note today. ``The markets cannot price in an ECB rate hike anymore. We are recommending euro selling against the dollar.'' The 15-nation currency may fall to $1.54 by the end of September, she said. The euro fell 0.9 percent against the dollar last week, the most since mid-June, after German business confidence declined and European manufacturing and services industries contracted. To contact the reporters on this story: Ye Xie in New York at Yxie6@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net.

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