Dollar Near 5-Week Low Versus Euro Before Housing Data, Fed

The dollar fell toward a five-week low against the euro before a report likely to show confidence among U.S. homebuilders stayed near 17-month low, adding to evidence the economic recovery is losing steam.

The U.S. currency dropped for the fifth time in six days versus the 16-nation euro amid speculation the Federal Open Market Committee will say at a meeting tomorrow it’s considering further measures to keep borrowing costs near zero. The Swedish krona traded near a one-week low against the euro after Prime Minister Fredrik Reinfeldt won a second term though his coalition may have to rule as a minority.

“We need to see how the housing data drops out,” said Jeremy Stretch, global head of foreign-exchange strategy at Canadian Imperial Bank of Commerce’s CIBC World Markets unit in London. “It’s also all about the FMOC and whether the market perceives that the Fed are going to get out the big guns again and look at additional easing.”

The dollar dropped to $1.3108 per euro as of 9:06 a.m. in London from $1.3050 in New York on Sept. 17, when it fell to $1.3159, the weakest level since Aug. 11. The U.S. currency slipped to 85.61 yen from 85.86 yen. The yen was at 112.26 per euro from 112.06 at the end of last week.

The National Association of Home Builders/Wells Fargo confidence index in the U.S. was at 14 this month, from 13 in August, according to a Bloomberg News survey. The reading has stayed below the 50 level, which means a majority of respondents said conditions were poor, since April 2006. The August reading was the lowest since March 2009.

Fed Meeting

The Fed is likely to affirm at this week’s meeting its pledge to keep interest rates low for an “extended period” and maintain the floor on its holdings of securities, according to economists surveyed by Bloomberg.

“The bears are naturally hoping for U.S. housing data over the next two days to disappoint,” Philip Wee, a senior currency economist in Singapore at DBS Group Holdings Ltd., wrote today in a note to clients. “The skeptics are hoping for more quantitative-easing measures from the Fed.”

The Dollar Index, which tracks the greenback against currencies from six major U.S. trading partners, dropped 0.4 percent to 81.100. The gauge has dropped for the past two weeks.

The krona fell by as much as 0.4 percent to 9.2610 against the euro, the weakest since Sept. 9, before trading at 9.2285 from 9.2276. It gained 0.5 percent to 7.0342 per dollar.

Reinfeldt’s coalition probably lost six seats compared with the 2006 election, giving it 172 lawmakers in the 349-seat parliament, a Sveriges TV estimate showed. The opposition probably lost 14 seats and will have 157 lawmakers. The Swedish Democrats won 20 seats, STV estimates.

Pimco’s El-Erian

The Fed will also reduce its economic growth forecasts at this week’s meeting, said Mohamed A. El-Erian, chief executive at Pacific Investment Management Co., which runs the world’s biggest bond fund.

The Fed “should and, I suspect, will,” cut its growth predictions, El-Erian, who is based in Newport Beach, California, wrote in an opinion piece published on Pimco’s website.

The extra yield offered by 10-year Treasuries over similar- maturity Japanese government bonds has shrunk to 1.66 percentage points from this year’s high of 2.61 points on April 5.

Australia’s dollar climbed toward a two-year high against the greenback, after central bank Governor Glenn Stevens signaled policy makers may need to resume raising interest rates should a mining boom stoke the economy. His comments spurred traders to raise bets he will increase rates at the central bank’s next meeting.

‘Robust Upswing’

“The task ahead is likely to be one of managing a fairly robust upswing,” Stevens told a forum in the regional city of Shepparton in Victoria state today. “Part of that task will, clearly, fall to monetary policy.” The RBA will tomorrow release the minutes of its Sept. 7 meeting, when it left its benchmark on hold for a fourth month and said it was appropriate “for the time being.”

The Aussie rose 1.1 percent to 94.65 U.S. cents from last week, after reaching 94.69 cents, matching the strongest level since July 2008. There is a 31 percent the central bank will raise rates at its Oct. 5 policy review, up from 19 percent odds at the end of last week, according to a Credit Suisse AG index.

“The market is responding to the line that Governor Stevens thinks growth will increase to something above trend,” said Sue Trinh, a Hong Kong-based senior currency strategist at Royal Bank of Canada. “Aussie should remain underpinned at least till the end of the month. Investors who are looking to fade this rally can afford to be patient.”

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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