Dollar May Extend Fall on Prospects Fed Will Keep Rates Low

NEWYORK, Feb. 25  -- The dollar may decline versus the euro for a second day on speculation the Federal Reserve will keep interest rates near zero to support an economic recovery.

The U.S. currency traded near a one-week low against the yen after Fed Chairman Ben S. Bernanke said a "nascent" recovery in the economy still requires low borrowing costs and before a report forecast to show U.S. companies expanded at a slower pace this month. The yen and dollar also may fall against higher-yielding counterparts as a U.S. share rally damps demand for the currencies as a refuge.

"If you get stocks up and risk is a bit better, it seems to remove a little bit of safe-haven demand for the U.S. dollar," said Tony Morriss, a senior markets strategist in Sydney at Australia & New Zealand Banking Group Ltd. "It's quite a nuanced message from the Fed at the moment. They are ready to start unwinding extraordinary measures, but clearly committed to keeping the Fed fund rate low."

The dollar traded at $1.3543 per euro at 8:17 a.m. in Tokyo from $1.3538 in New York yesterday, when it fell 0.2 percent. The U.S. currency has risen 2.4 percent versus the euro this month, heading for a third monthly gain, its longest stretch since November 2008.

The greenback was at 90.17 yen from 90.15. It touched 89.77 yen yesterday, its weakest level since Feb. 16. For the month, the U.S. currency is down 0.1 percent against the yen. Japan's currency traded at 122.08 per euro from 122.03.

U.S. Data

The Institute for Supply Management-Chicago Inc. is forecast to report tomorrow that its business barometer fell to 59.7 this month from 61.5 in January, according to the median estimate of economists in a Bloomberg News survey. Readings greater than 50 signal expansion.

The Standard & Poor's 500 Index rose 1 percent after Bernanke said low interest rates are needed to encourage demand by consumers and businesses once federal stimulus expires.

"A sustained recovery will depend on continued growth in private-sector final demand for goods and services," Bernanke told the House Financial Services Committee yesterday in Washington at the start of his two days of semi-annual testimony before Congress. "Private final demand does seem to be growing at a moderate pace.'

-- Editors:

To contact the reporters on this story:
Yoshiaki Nohara in Tokyo at
ynohara1@bloomberg.net;
Inyoung Hwang in New York at
ihwang7@bloomberg.net

Last Updated: February 24, 2010 18:24 EST