March 6 (Bloomberg) -- The euro rose to a record against the dollar on speculation the European Central Bank will keep its key interest rate at the highest in more than six years while the Federal Reserve reduces borrowing costs.

The ECB will leave the rate at 4 percent today, according to economists surveyed by Bloomberg News. The yield advantage on two-year German notes over U.S. Treasuries widened to the most in 15 years as traders bet the Fed will cut rates by at least half a percentage point to a three-year low of 2.5 percent by March 18. ECB President Jean-Claude Trichet will brief reporters after today's decision.

``It's unlikely he'll say anything that points to a more aggressive stance on the currency,'' Andy Chaytor, an interest- rate strategist at Royal Bank of Scotland Group Plc in London, wrote in a note to clients today. ``This will be seen as a green light to push euro-dollar higher.''

The euro climbed to $1.5347, the highest level since the single currency's debut in 1999, before trading at $1.5319 by 11:09 a.m. in London, from $1.5265 in New York yesterday. It was at 158.49 yen, from 158.76 yesterday. The U.S. currency fell to 103.48 yen, from 104.01 yesterday. Against the Swiss franc, the U.S. currency fell to a record 1.0228 today, from 1.0366.

The euro also rose to a record versus the pound before a Bank of England interest-rate decision today. U.K. policy makers will keep borrowing costs at 5.25 percent, according to a survey of economists. The common currency climbed to an all-time high of 76.92 British pence, before trading at 76.84 pence, from 76.63 yesterday.

U.S. Home Sales

The dollar weakened against 13 of the 16 most-active currencies on speculation an industry report on home sales will spur Fed Chairman Ben S. Bernanke to further lower the target interest rate. The U.S. Dollar Index traded on ICE Futures in New York declined for an eighth day to a record low of 73.170.

``Mr. Bernanke, with his monetary policies, he will destroy the U.S. dollar,'' Marc Faber, with $300 million under management at Hong Kong-based Marc Faber Ltd., said in an interview with Bloomberg Television. The publisher of the Gloom, Boom & Doom report predicted U.S. rate cuts will spur inflation.

The yield premium on two-year German bunds over similar- maturity U.S. debt was at 1.65 percentage point today, the most since October 1993.

The dollar dropped against Asian currencies on speculation central banks in the region will allow their currencies to strengthen to combat inflation. The Singapore dollar rose to S$1.3858, the highest since 1995, while Malaysia's ringgit advanced 0.5 percent to 3.1660 per U.S. dollar.

`Negative Yield Story'

Futures show traders see a 62 percent chance the Fed will lower its target rate 0.75 percentage point to 2.25 percent on March 18. The balance of bets is on a half-point cut.

The National Association of Realtors' index of signed home- purchase agreements fell 1 percent in January, according to a Bloomberg News survey. It declined 1.5 percent in December.

``The yield story is negative for the dollar,'' said Tomoko Fujii, head of Japan economics and strategy at Bank of America Corp. in Tokyo, the second-largest U.S. bank. ``The U.S. interest-rate disadvantage over Europe is widening, and its advantage is diminishing over Japan.''

The dollar may decline to $1.55 per euro by March 31, Fujii forecast.

The Fed's 2.25 percentage point of cuts since September in the target rate for overnight loans between banks to 3 percent have spurred gains in oil and gold prices, said Faber. Oil climbed to a record of $105.96 a barrel in New York and gold for immediate delivery to an all-time high of $992.05 an ounce.

`Unlikely to Intervene'

Japan's Ministry of Finance will refrain from selling the yen even if it strengthens beyond 100 per dollar, according to Royal Bank of Scotland Group Plc.

Japan's Ministry of Finance ``is very unlikely to intervene to hinder the yen appreciation,'' Masafumi Yamamoto, head of foreign-exchange strategy for Japan at the U.K.'s second-biggest bank, wrote in a research note published yesterday. ``It is still weak on a trade-weighted basis.''

The yen's real effective exchange rate, measured against 15 currencies of major trading partners, is 99.5, according to Bank of Japan data. The rate averaged 121.9 in the first quarter of 2004, when the central bank last intervened in currency markets, selling a record 14.8 trillion yen ($142 billion).

Gains in the euro may be limited by speculation Trichet will say a strong currency threatens economic growth after today's policy meeting. Trichet said the U.S. government's ``strong dollar'' policy is ``very important'' at a meeting with European finance ministers on March 4.

``The biggest focus of today is to what extent Trichet tries to talk down the euro and prop up the dollar,'' said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Japan's second- largest publicly traded lender. ``This will put a cap on the euro for the time being.''

To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Kosuke Goto in Tokyo at kgoto2@bloomberg.net

Last Updated: March 6, 2008 06:38 EST