Dollar Opens Year with Loss on Possible U.S. Manufacturing Slow down (Bloomberg) (02-01-2008)

Jan. 2 (Bloomberg) – The dollar continued its two year losses against the euro as traders await a U.S. report that could show a manufacturing slowdown, which may mean that the housing slump is spreading.

It remains near the lowest in three weeks versus the yen as a possible decline in the ISM factory index may give the Fed more reason to reduce its benchmark interest rate again this month after three cuts since September. The U.S. currency weakened against 13 of the 16 most-actively traded currencies today.

The U.S. currency fell to $1.4658 per euro at 7:45 a.m. in London from $1.4592 late in New York yesterday. It touched $1.4967 on Nov. 23, the lowest since the euros introduction in 1999. It was at 111.42 yen from 111.64 yen. The dollar may drop to $1.4750 this week, Morriss said.

Australia's dollar advanced for a second day against the U.S. currency after a report showed the nation's industrial production grew at the fastest pace in more than five years last month. The Australian dollar was at 87.89 U.S. cents versus 87.61 yesterday.

Against the U.S. currency, the British pound traded at $1.9822 compared with $1.9864, the Swiss franc was at 1.1291 from 1.1332 and Canada's dollar was at 99.27 Canadian cents per U.S. dollar from 99.26.

The dollar slid against the euro in 2007 as the Fed lowered its benchmark rate by 1 percentage point to 4.25 percent. The euro gained 10.6 percent last year as the European Central Bank raised borrowing costs twice to 4 percent.

The ISM factory index fell to 50.5 in December from 50.8 the previous month, the Tempe, Arizona-based group may report, according to the median estimate of economists surveyed by Bloomberg News. A reading of 50 is the dividing line between expansion and contraction.

The yen fell as a report showing manufacturing expanded in Australia encouraged traders to buy higher-yielding assets with money borrowed in Japan in so-called carry trades.

The euro may extend last year's 3.7 percent advance against the yen as Germany's jobless rate dropped to 8.5 percent in December, the lowest since April 1993, according to a Bloomberg survey of economists.

Traders increased bets the ECB will raise rates from 4 percent, interest-rate futures show. The implied yield on the March Euribor contract rose to 4.545 percent today from 4.53 on Dec. 31.

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