Sept. 20 (Bloomberg) -- The dollar traded within a half-cent of its record low versus the euro before Federal Reserve Chairman Ben S. Bernanke's congressional testimony on the mortgage market and growth.

His comments today will follow the first U.S. interest-rate cut since June 2003, which pushed the dollar to a 15-year low against an index of six major currencies on Sept. 18. Traders bet the central bank may reduce borrowing costs further this year as the worst housing slump in 16 years threatens economic growth.

``The Fed is trying to put on some insurance for the economy to weather the storm,'' said Jeff Gladstein, global head of foreign-exchange trading at AIG Financial Products in Wilton, Connecticut. ``The bigger picture is still a weaker dollar. The dollar will grind lower and fall to the zone of $1.42 to $1.43 per euro by year-end.''

The dollar traded at $1.3958 per euro and 116.05 yen at 6 a.m. in Tokyo. The U.S. currency gained 0.2 percent against the euro yesterday after earlier falling to as low as $1.3987. The dollar dropped 0.8 percent and reached a record low of $1.3988 on Sept. 18 after the Fed's rate decision.

The U.S. currency has lost 5.5 percent this year versus the euro as traders bet the Fed would cut interest rates while the U.S. economy slowed. The European Central Bank's benchmark interest rate is 4 percent.

Bernanke's Testimony

Bernanke will testify at 10 a.m. in Washington before the House Financial Services Committee on the mortgage market and President George W. Bush's plan to ease foreclosures. Bernanke will appear with Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson.

Futures contracts show traders are betting the Fed will cut its benchmark rate again by year-end. The odds of a quarter- percentage point reduction to 4.5 percent at the Fed's meeting next month rose to 80 percent yesterday from 54 percent a week ago.

The dollar rebounded yesterday as some investors sold the euro to prevent it from reaching $1.40 because a break at that level would render option bets worthless.

``The euro is facing a challenge at $1.40,'' said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. ``Lots of option buyers need to defend that level and the dollar is getting back a bit of support. But the rebound will be short- lived. There is still a lot of interest to push the dollar lower.''

An option is a contract granting buyers the right, but not the obligation, to buy or sell a security, currency, commodity or an index's cash value at a set price.

Inflation, Housing

U.S. reports yesterday showed consumer prices unexpectedly declined 0.1 percent last month while housing starts fell to an annualized 1.331 million during August, the lowest in 12 years.

The data supported the view the Fed needs to cut borrowing costs further to prevent a recession, amid a housing market collapse and as inflation pressures recede.

``The data validated the Fed's view to take growth before inflation and to cut interest rates,'' said Kathy Lien, chief currency strategist at DailyFX.com in New York. ``The market is taking a break. The dollar is losing interest-rate support, and I think $1.40 against the euro is within reach this week.''

The New York Board of Trade's Dollar Index comparing the U.S. currency against six primary peers, including the euro and yen, touched 79.091 yesterday, the lowest since September 1992.

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

Last Updated: September 19, 2007 17:01 EDT