The euro fell the most in almost eight years, pushing the currency to a six-month low against the U.S. dollar, as traders pared bets the European Central Bank will raise interest rates as the economy slows.
The euro dropped below $1.50 for the first time since February after ECB President Jean-Claude Trichet yesterday said economic growth will be ``particularly weak'' through the third quarter. An index that tracks the dollar against the currencies of six U.S. trading partners touched the highest since February. Crude oil fell to a three-month low, silver reached its cheapest since January and copper headed for its biggest weekly drop since March, easing inflation concerns.
``We are now seeing a lot more negative surprises coming out of Europe than from the U.S., more so than any time during this credit shock,'' said Jim McCormick, head of currency strategy at Lehman Brothers Holdings Inc. in London. ``At the same time, you've got some pretty strong capital inflows to the U.S. We kind of have the perfect circle of fundamentals bumping into strong technicals.''
Europe's shared currency tumbled 2.08 percent to $1.5005 at 5 p.m. in New York and reached $1.499, the lowest level since Feb. 26, from $1.5325 yesterday. The slide was the biggest one- day drop since Sept. 6, 2000, when the currency dropped the most since the 1999 introduction of the euro.
Against the yen, the European currency slipped 1.4 percent to 165.38, from 167.70. The dollar rose 0.67 percent to 110.18 yen after touching 110.36, the strongest since Jan. 2.
Moving Average
The euro's decline below $1.53 and the break of the 200-day moving average at $1.5226 ``marks a significant change in sentiment for the dollar,'' pointing to a further decline to $1.46, Kevin Edgeley, a London-based technical analyst at Goldman Sachs Group Inc., wrote in a report today. It was the first time the euro fell below the 200-day moving average since 2006.
Since reaching a record high of $1.6038 on July 15, the euro has dropped 6.4 percent. The so-called trading envelopes, which measure how far from the mean a price has strayed, show the euro's decline has doubled the typical changes versus the dollar in the past 20 days.
``The most important aspect of the dramatic collapse in the euro dollar is the absence of confirmation from other markets,'' said David Woo, global head of currency strategy at Barclays Capital Inc. in London. ``None of the typical drivers of the euro-dollar in the past couple of years could have accounted for the magnitude of this move, which leads one to conclude that this is a technical-driven move. From that point of view, we do not think that this move is sustainable.''
`Undervalued'
The euro is about 2.5 percent ``undervalued'' against the dollar, according to Barclay's models, Woo wrote in a research note to clients today.
The European currency has declined 3.6 percent against the dollar in its fourth weekly decline, the worst losing streak since May 2007. Against the yen, the U.S. currency has advanced 2.2 percent, its biggest weekly gain in almost two months.
The Dollar Index on the ICE futures exchange reached 75.903 today, the highest since Feb. 21.
Mohamed El-Erian, co-chief executive officer of Pacific Investment Management Co., said the U.S. government's efforts to support Fannie Mae and Freddie Mac will lead to greater Treasury issuance and a weaker dollar.
``It's ultimately inflationary as long as the global economy doesn't collapse,'' El-Erian said in an interview on Bloomberg Radio.
Russian Ruble
South African's rand led losses among the most-traded currencies as the prices of gold and platinum dropped, reducing prospects for export earnings from the country's biggest exports. The greenback rose to a six-month high against the Australian dollar, and advanced to the highest since September against the New Zealand dollar on speculation the central banks will cut borrowing costs.
Russia's ruble fell by the most in 2 1/2 years against a dollar-euro basket used by the government after Georgia's Interior Ministry said four Russian fighter-jets entered Georgian airspace and bombed the towns of Gori and Kareli, boosting the risk of war. The ruble dropped as much as 0.8 percent against the basket.
The pound fell below $1.93 for the first time since March 2007 as the Bank of England kept its main interest rate steady at 5 percent yesterday after inflation accelerated and the economy teetered on the brink of a recession. It has dropped 2.7 percent this week to $1.9212, its biggest weekly drop in three years.
`No Bias'
Trichet said yesterday he has ``no bias'' or ``pre- commitment'' toward future rate movements after the central bank left the main refinancing rate at 4.25 percent. He told reporters in Frankfurt that while inflation remains a threat, risks to economic growth are ``materializing.''
European retail sales dropped by the most in at least 13 years in June, the European Union said on Aug. 5. Consumer confidence slid in July by the most since the Sept. 11, 2001, terrorist attacks, the European Commission said July 30.
``This is the beginning of a new chapter for the dollar as Trichet and other central banks are paying more attention to the downside risk to growth,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago. ``The decline of oil prices is a significant driver behind this dollar rally because it enables other central banks to turn their eyes away from inflation and focus on growth.''
Traders pared bets the ECB will lift rates a second time this year after increasing its main rate by a quarter-point last month. The implied yield on the December interest rate futures, an indication of expectations, retreated 2 basis points to 4.94 percent today.
Oil, Metals, Crops
Crude oil, metal and crop prices fell as the dollar climbed, reducing the appeal of commodities as a currency hedge. Oil has declined to $115.15 a barrel since touching the record of $147.27 on July 11.
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 moved in lockstep.
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