FOREX-Consumer gloom pushes dollar to record low vs euro
(Updates prices, adds detail)
By Steven C. Johnson
NEW YORK, Sept 25 (Reuters) - The dollar fell to a record low against the euro on Tuesday as U.S. consumer confidence plunged to a near two-year trough, raising expectations of another Federal Reserve interest rate cut next month.
Tuesday marked the fourth consecutive session in which the dollar tested all-time lows against the euro, which has gained on signs of weaker U.S. growth and the view that lower interest rates will keep eroding the dollar's yield advantage.
The Fed last week cut its benchmark federal funds rate by half a percentage point to 4.75 percent. The euro zone's refinancing rate stands at 4 percent.
A separate report showed sales of existing U.S. homes fell 4.3 percent in August, heaping more pressure on the dollar.
"The housing data confirmed what we already know, but the confidence number at a two-year low is a concern. It highlights that there's been a shift in the consumer outlook, and that will be important for the Fed," said Camilla Sutton, currency strategist at Scotia Capital in Toronto.
Interest rate futures are pricing in a 95 percent chance of a quarter-point cut in October, up from 72 percent on Monday.
The euro <EUR=> last traded at $1.4142, up 0.4 percent and just below an all-time high of $1.4153 hit earlier, according to Reuters data. The dollar also fell against the yen, trading at 114.69 yen <JPY=>, down 0.1 percent on the day.
The greenback rose against sterling, though, after a report in a British newspaper sparked worries about the UK financial sector arising from the credit crisis. Sterling <GBP=> traded at $2.0188, down 0.2 percent on the day.
Divyang Shah, a currency strategist at Commonwealth Bank in London, said the weaker confidence numbers hurt the dollar, though he added markets should "probably keep an eye on what households are doing as opposed to what they are saying."
But Boris Schlossberg, senior currency strategist at DailyFX.com in New York, said "the drop below 100 (in the consumer confidence index) was just an ugly psychological number for the market, and that pushed the euro way above the 1.40 level."
The U.S. Conference Board's index of consumer sentiment fell to 99.8 in September, the lowest since November 2005 and down from 105.6 in August. Economists expected a 104 reading.
Earlier, the euro was unfazed by a report showing German Ifo business confidence survey surprised on the weaker side.
Analysts said the Ifo survey was yet another sign of softening in the euro zone economy, a situation that hinted at steady interest rates there for the rest of 2007 and possible monetary easing early next year.
Some analysts say the prospect of a future euro-zone rate cut or a nearer-term technical rebound mean the euro's rally against the dollar may be close to an end.
"We're certainly into overbought territory," said Scotia's Sutton, though she added much will depend on economic data.
The U.S. will release August durable goods orders data on Wednesday.
Added Schlossberg: "It's not inconceivable for the euro to make a run to an all-time high around $1.45, but should it reach those levels there will be so much rhetoric coming out of the euro zone."
On Monday, the government of French President Nicolas Sarkozy said euro strength was eroding the competitiveness and productivity of firms.
Also on Tuesday, the Bank for International Settlements released a report showing global foreign exchange turnover rose to $3.2 trillion per day in 2007 from $1.9 trillion in 2004.
It showed the number of transactions involving the U.S. dollar fell to 86 percent from 89 percent three years ago.