Aug. 26 (Bloomberg) -- The dollar rose to a six-month high against the euro on speculation the greenback will be the main beneficiary of a global economic slowdown as German business confidence dropped in August more than forecast.

The U.S. currency was headed for the biggest monthly gain since the 15-nation euro debuted in 1999, increasing to an 11- month high versus the Australian dollar and gaining versus the New Zealand dollar and the Swedish krona. British sterling declined to the weakest level versus the dollar in two years as mortgage approvals held last month near a decade low.

``The dollar is leaning heavily on bad news elsewhere,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``The market is coming around to the view that the extremely high level in the euro-dollar is not justified.''

Against the euro, the dollar increased 0.8 percent to $1.4644 at 4:02 p.m. in New York, from $1.4754 yesterday. It touched $1.4571, the strongest level since Feb. 14. The dollar rose 0.3 percent to 109.64 yen, from 109.30. The euro fell 0.4 percent to 160.55 yen, from 161.26 yesterday, after reaching 159.99, the lowest level since May 12.

The greenback has risen against all of the other major currencies this month, with gains ranging from a 10.2 percent advance against the Australian dollar to a 1.2 percent increase versus the Mexican peso. The dollar has climbed 6.4 percent against the euro, the biggest monthly gain since the European currency began trading.

Dollar's Index

The ICE futures exchange's Dollar Index, which compares the greenback against the currencies of six U.S. trading partners, rose to 77.619 today, the highest level since Dec. 26.

Deutsche Bank AG, the world's largest currency trader, predicts the dollar will appreciate to $1.45 by year-end, a call it has maintained since April.

UBS AG, the second largest, raised its forecast this month, predicting the greenback will trade at $1.47 in three months, compared with a previous forecast of $1.53. Lehman Brothers Holdings Inc. expects the currency will rise to $1.43 per euro by year-end and $1.40 by the end of the first quarter, compared with previous forecasts of $1.50 and $1.48.

Speculation that central banks will lower interest rates to support growth pushed most of the major currencies down against the dollar today. The Australian dollar fell 0.9 percent to 85.55 U.S. cents after it reached 84.94, the weakest level since September. The New Zealand dollar lost 0.9 percent to 69.75 U.S. cents, while Sweden's krona decreased 0.8 percent to 6.4031 versus the U.S. dollar.

Weaker Pound

The pound dropped 0.8 percent to $1.8387 after touching $1.8331, the lowest level since July 2006. British banks granted 22,448 loans for house purchases in July, down 65 percent from a year earlier, the British Bankers' Association said. The reading fell to 22,369 in June, the lowest since 1996.

The euro has lost more than 8 percent versus the dollar since touching an all-time high of $1.6038 on July 15. It depreciated as the European economy contracted in the second quarter and crude oil dropped more than 20 percent from a record $147.27 a barrel set last month.

The Ifo institute's German business confidence index declined this month to 94.8, the lowest level in three years, from 97.5 in July. The median forecast of 35 economists surveyed by Bloomberg News was for a decrease to 97.2.

``The combination of incremental weakness in the European economy and moderating oil prices should keep the pressure on the euro,'' said Manuel Oliveri, a currency strategist at UBS in Zurich.

ECB Rate Outlook

The euro dropped for a second day versus the yen and declined 0.8 percent to 2.3870 Brazilian reais as traders added to bets that the European Central Bank will cut interest rates next year. The implied yield on the Euribor futures contract expiring in September 2009 fell 6 basis points, or 0.06 percentage point, to 4.32 percent. The yield averaged 18 basis points above the ECB's benchmark, currently 4.25 percent, from 1999 to August 2007.

Europe's currency pared losses today as crude oil for October delivery rose 1 percent to $116.28 a barrel. The euro- dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.

Canada's dollar was the only major currency to gain against the dollar today, rising as much as 1 percent to a three-week high of C$1.0412 per dollar. Commodities such as gold and oil account for half of Canada's exports.

Fed Minutes

Federal Reserve policy makers agreed this month that their next change in interest rates will be to raise them, while reaching no conclusion on the timing of such a decision, minutes of their Aug. 5 meeting showed today.

The Fed left the benchmark lending rate unchanged at 2 percent, signaling weak employment and financial instability will delay an increase in short-term borrowing costs.

``The U.S. economy hasn't bottomed yet,'' said Stephen Malyon, co-head of currency strategy at Scotia Capital Inc. in Toronto. ``As the market refocuses on that, the dollar will come back under pressure, even though it has turned around.''

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net

Last Updated: August 26, 2008 16:05 EDT