Oct. 30 (Bloomberg) -- The dollar declined to a record low against the euro after a report showed U.S. consumer confidence fell this month to the weakest in two years.

Traders also pushed the dollar to the weakest in 26 years versus the pound as the data may raise speculation the Federal Reserve will cut borrowing costs tomorrow by a quarter-percentage point to prevent the biggest housing slump in 16 years from triggering a recession.

``The consumer confidence report is another piece to add to the fuel for Fed rate cuts,'' said Michael Malpede, a senior currency analyst in Chicago at Man Global Research. ``It prompted some dollar selling.''

The U.S. currency traded at $1.4433 per euro at 4:08 p.m. in New York, after touching $1.4441, the weakest since the European currency's debut in January 1999. The dollar reached its previous all-time low yesterday. The U.S. currency touched $2.0704 per British pound, the lowest since May 1981. The dollar was little changed at 114.72 yen from 114.66.

The U.S. Dollar Index traded on ICE Futures U.S. in New York touched 76.719 today, the weakest since the index began in 1973. The Fed's trade-weighted index comparing the dollar with major currencies fell to 72.87 yesterday, the lowest since its inception in 1971.

U.S. Consumer Confidence

The Conference Board's index of consumer confidence declined to 95.6 this month from 99.5 a month earlier. It compared with the median forecast of 99 in a Bloomberg News poll. The U.S. currency reached $1.0511 per Canadian dollar, the lowest since 1960.

Home prices in 20 U.S. metropolitan areas fell 4.4 percent in the 12 months through August, the most since records began in 2001, according to the S&P/Case-Shiller home-price index released today.

The Fed cut its target rate for overnight bank loans by a half-percentage point on Sept. 18 to 4.75 percent, the first reduction since 2003, after losses from subprime mortgage investments roiled credit markets. The dollar has dropped against all 16 of the most-actively traded currencies since then, losing 3 percent against the euro.

Interest-rate futures traded on the Chicago Board of Trade show a 94 percent chance the Fed will lower its benchmark rate by a quarter-percentage point to 4.50 percent tomorrow.

Gross on Fed

``There's an idea that if the rates are lower, the dollar will weaken,'' said Walter Hellwig, who helps oversee $30 billion in assets as senior vice president at Morgan Asset Management, in Birmingham, Alabama. ``The outlook for our economy is not as attractive as it once was. The Fed needs to continue to cut'' borrowing costs.

Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co., wrote in a report published on the firm's Web site yesterday that he expects the Fed to lower its benchmark rate to 3.5 percent to avoid a recession.

U.S. gross domestic product, the broadest measure of the economy, probably slowed to an annualized pace of 3.1 percent in the third quarter from 3.8 percent a quarter earlier, according to the median forecast in a Bloomberg survey. The data is scheduled for release at 8:30 a.m. New York time tomorrow.

The dollar reached as high as $1.4374 earlier after a Wall Street Journal report today said the Fed may not lower rates tomorrow, pushing some investors to trim bets against the U.S. currency. Rate cuts can hurt the dollar by decreasing returns on deposits in the currency.

Not `Done Deal'

A Fed rate cut isn't a ``done deal,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``The dollar got some support as some people cut back dollar shorts,'' meaning bets the currency will decline.

Investors pushed up the pound as speculation waned that the Bank of England will cut interest rates from a six-year high of 5.75 percent. The European Central Bank's rate is 4 percent.

U.K. central bank policy maker Kate Barker signaled the rate-setting committee isn't convinced that signs of a slowdown in Europe's second-biggest economy warrant a cut in the benchmark interest rate.

The yen fell against the euro and pound on speculation the Bank of Japan will keep the lowest borrowing costs among major economies unchanged tomorrow, encouraging investors to borrow in Japan to buy higher-yielding assets elsewhere.

The bank will keep its benchmark rate at 0.5 percent tomorrow, according to all 45 economists surveyed by Bloomberg News. The Japanese currency declined to 165.49 per euro from 165.38.

To contact the reporters on this story: Min Zeng in New York at mzeng2@bloomberg.net.

Last Updated: October 30, 2007 16:15 EDT