Sept. 13 (Bloomberg) -- The dollar may extend a decline that pushed the currency to an all-time low versus the euro on signs the U.S. economy is slowing.

The currency has weakened for six straight days, the longest losing streak since April, as investors increase bets the Federal Reserve will reduce its target interest rate next week, narrowing the yield advantage of the U.S. over Europe. A government report today is forecast to show the number of initial unemployment claims in the week ended Sept. 8 rose.

``The dollar weakness is back in play,'' said Adam Boyton, a senior currency strategist in New York at Deutsche Bank AG, the world's biggest currency trading bank. ``The market now fears that U.S. growth is worse than anticipated, and the Fed needs to cut rates.''

The dollar traded at $1.3904 per euro at 6 a.m. in Tokyo, after yesterday declining to an all-time low of $1.3914. That compares with the previous low of $1.3852 on July 24. The dollar bought 114.19 yen.

The Fed will cut its benchmark interest rate by 0.75 percentage point this year to 4.5 percent, pushing the dollar under $1.40 per euro over the next few months, Boyton said.

Initial unemployment claims rose by 7,000 to 325,000 in the week ended Sept. 8, the Labor Department may report today in Washington, according to the median forecast of 43 economists surveyed by Bloomberg News.

The dollar dropped more than 1 percent last week versus the euro after a government report showed the economy unexpectedly shed jobs in August for the first time in four years.

`Sell the Dollar'

``The slump in the housing sector is more serious than expected, and it is having a negative impact on job growth,'' said Paresh Upadhyaya, who helps manage $29 billion in currency assets at Putnam Investments in Boston. ``I am looking for opportunity to sell the dollar, especially against the euro and the yen.''

Upadhyaya forecasts two interest-rate cuts totaling 50 basis points by the Fed this year. The dollar may fall to $1.40 versus the euro and 110 yen, Upadhyaya said.

The dollar has lost 3.4 percent since Aug. 16, pushing the 14-day relative strength index for the dollar against the euro to 69.93 yesterday. A reading above 70 indicates a reversal may occur.

Investors wager the Fed will cut its key borrowing rate by a half-percentage point to 4.75 percent on Sept. 18, narrowing the gap to 0.75 percentage point. Futures show the European Central Bank might eliminate the spread by year-end.

Interest-Rate Futures

Interest-rate futures show 74 percent odds the Fed will lower borrowing costs to 4.75 percent. A month ago, traders expected a quarter-point cut.

Traders bet there's a 79 percent chance the Fed might go to at least 4.5 percent by year-end, and have increased wagers the ECB will also end the year at 4.5 percent.

The implied yield on the December Euribor futures contract yesterday rose 3 basis points, or 0.03 percentage point, to 4.54 percent. The contract settles to the three-month interbank offered rate for the euro, which has averaged about 16 basis points above the ECB's key rate since 1999.

New Zealand's dollar traded at 71.13 U.S. cents after the central bank kept borrowing costs at 8.25 percent today. The bank's action was in line with all 14 economists surveyed by Bloomberg.

To contact the reporter on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net

Last Updated: September 12, 2007 17:02 EDT