June 24 (Bloomberg) -- The euro may extend its decline versus the dollar before a survey forecast by economists to show German consumer confidence will fall in July.

The 15-nation euro declined yesterday against the yen and the dollar as German business confidence contracted this month, reducing speculation the European Central Bank will increase borrowing costs. The Federal Reserve is forecast to maintain its target lending rate at 2 percent at a two-day meeting beginning today.

``The core economies like Germany and France have been strong until now, but that's starting to change,'' said Ian Stannard, a senior currency strategist at BNP Paribas SA in London, who predicts the U.S. currency will strengthen to $1.40 per euro by the end of March. ``We're expecting the euro to come under pressure.''

The euro traded at $1.5525 at 6:28 a.m. in Tokyo, after decreasing 0.6 percent yesterday. It touched the all-time high of $1.6019 on April 22. The euro bought 167.34 yen, following a 0.1 percent decline. The yen traded at 107.79 per dollar, after decreasing 0.5 percent.

The Nuremberg-based GfK AG's index for July, based on a survey of about 2,000 people, will probably fall to 4.6, from 4.9 in June, according to the median forecast of 28 economists surveyed by Bloomberg News. Germany's economy is the biggest of the countries that use the euro.

ECB Rates

Investors reduced bets yesterday on rate increases by the ECB, futures contracts showed. The implied yield on the March Euribor futures contract dropped 2 basis points, or 0.02 percentage point, to 5.31 percent. The contract has gained 55 basis points in the past month.

ECB President Jean-Claude Trichet said on June 5 that the bank may increase the 4 percent main refinancing rate by a quarter-percentage point next month. The central bank will make such an increase by the end of September, while the Fed will hold its target steady, according to the median forecast of economists in Bloomberg News surveys.

``There's still an expectation that the ECB will tighten quicker than the Fed,'' said Alan Ruskin, head of international currency strategy, at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``But if they're tightening into weakening data,'' the ECB may be more cautious.

Swiss Lending Rates

The Swiss franc fell 0.9 percent to 1.0455 per dollar yesterday, the biggest drop since June 12, after the Bern, Switzerland-based State Secretariat for Economic Affairs lowered its forecast for economic growth in 2009 to 1.3 percent from a prior estimate of 1.5 percent.

The Swiss National Bank kept its target lending rate at 2.75 percent on June 19, among the lowest borrowing costs in the industrialized world.

Colombia's peso dropped the most in 10 months versus the dollar yesterday after the central bank said that starting today it will buy $20 million in the spot market to ease the local currency's appreciation. The peso decreased 3.2 percent to 1,729.00 per dollar.

The Hungarian forint fell against the dollar yesterday after the National Bank of Hungary unexpectedly left the benchmark two-week deposit rate unchanged at 8.50 percent. All 20 analysts surveyed by Bloomberg News had predicted the bank would raise the rate by a quarter-percentage point. The forint fell 0.3 percent to 153.87 per dollar.

Sterling dropped 0.5 percent to $1.9654 yesterday as Rightmove Plc, Britain's most-used property Web site, reported that the average asking price for a home dropped 1.2 percent this month from May to 239,564 pounds ($473,000).

German Business Sentiment

The euro weakened yesterday as the Munich-based Ifo institute's business-climate index, based on a survey of 7,000 German executives, dropped to 101.3 this month, from 103.5 in May. It was the lowest reading since December 2005, when it slumped to 99.6.

``It's becoming clear that the ECB can't tighten rates aggressively from here,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``That will temper the euro going forward.''

The dollar has traded in a range of $1.5303 to $1.5843 per euro since Fed Chairman Ben S. Bernanke said on June 9 that economic risk has faded, prompting investors to bet the central bank will increase the target lending rate later this year after seven reductions beginning in September. All of the 102 economists surveyed by Bloomberg News predict the central bank will hold the fed funds target steady tomorrow.

The greenback has gained 1.7 percent against the euro this quarter as traders bet the economic slowdown sparked by the collapse of the subprime-mortgage market will spread to Europe as the U.S. recovers.

To contact the reporters on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net; Candice Zachariahs in New York at czachariahs1@bloomberg.net.

Last Updated: June 23, 2008 17:32 EDT