Bloomberg

Euro Declines as German Ministry Says Economy Is Deteriorating

Aug. 20 (Bloomberg) -- The euro fell against the dollar to near the lowest level in six months as Germany's Economy Ministry said the outlook for Europe's largest economy has deteriorated even beyond the second quarter.

The pound fell to near a two-year low versus the dollar as minutes of the Bank of England's August meeting indicated British inflation risks may have ``eased a little'' while the outlook for the economy got worse. The dollar has risen 8 percent versus the euro from the record low set in July.

``The market was waiting for a big correction after such a massive dollar rally, but they never got it,'' said Steve Butler, director of foreign-exchange trading at Scotia Capital Inc. in Toronto. ``People are pessimistic about European growth. They are coming back to buy the dollar on a dip.''

The euro decreased 0.2 percent to $1.4748 at 10:38 a.m. in New York, from $1.4776 yesterday, when it touched $1.4631, the lowest since Feb. 20. It reached the record high of $1.6038 on July 15. The currency fell 0.1 percent to 161.92 yen, from 162.13 yesterday, when it touched 160.87, the weakest in three months. The dollar traded at 109.76 yen, compared with 109.72.

The pound dropped 0.3 percent to $1.8621 on the Bank of England's economic outlook, after touching $1.8512 on Aug. 15, the lowest level since July 2006.

BOE policy makers split three ways when they kept the target lending rate unchanged earlier this month, minutes of the Aug. 7 meeting showed today. Governor Mervyn King and six other members of the Monetary Policy Committee held the benchmark at 5 percent, while one official voted for a rate increase and another called for a cut to help sustain growth.

Freddie Mac

The dollar erased its gain versus the yen and pared its advance against the euro after the Wall Street Journal reported that Freddie Mac executives are scheduled to meet with U.S. Treasury Department officials today.

Crude oil increased 1.5 percent to $116.24 a barrel. The euro-dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they move in lockstep.

Futures on the Chicago Board of Trade show a 21 percent chance the U.S. central bank will raise the 2 percent target rate for overnight lending between banks by at least a quarter- point by its Dec. 16 meeting, down from 35 percent odds a week earlier. Policy makers next meet Sept. 16.

The euro fell 0.2 percent to 14.9409 Mexican pesos as Germany's economic ministry said in its monthly report that growth will remain moderate.

The country's BDB banking association said it no longer expects Europe's biggest economy to expand between 2.25 percent and 2.50 percent this year, and will change its growth forecast on Sept. 18. The German economy shrank 0.5 percent in the second quarter, the first contraction in four years.