Dollar Falls to Record Versus Euro; Credit Woes May Damp Growth

July 15 (Bloomberg) -- The dollar declined to a record low against the euro on speculation Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson will say credit- market losses are hurting U.S. economic growth.

The currency also weakened to the lowest level in more than a month against the Japanese yen and to a 25-year low versus the Australian dollar on concern confidence in the debt of Fannie Mae and Freddie Mac will diminish even after the U.S. government pledged support for the two-largest buyers of home loans. The pound surpassed $2 for the first time since July 1 after U.K. inflation quickened to the fastest pace in at least 11 years.

"The markets are reacting negatively to the renewed credit crisis in the U.S. and that's hurting the dollar across the board,'' said Roberto Mialich, a Milan-based currency strategist at Unicredit Markets & Investment Banking, a unit of Italy's largest lender. "The market is speculating that Bernanke will offer a gloomy outlook for the U.S. economy.''

The dollar fell to $1.6038 per euro, the lowest since the euro's inception in 1999, and was at $1.6006 as of 7:22 a.m. in New York, from $1.5908 yesterday. The U.S. currency also dropped to 104.61 yen, the lowest level since June 9, from 106.14 yen yesterday. The yen traded at 167.69 per euro, from 168.89 yesterday, when it weakened to 169.75, the lowest since the single currency's debut.

The dollar may fall to between $1.62 and $1.63 in the coming month, Mialich said.

Given Up Gains

The U.S. currency has given up all the gains made versus the euro since July 3, when European Central Bank President Jean-Claude Trichet said he has ``no bias'' on future interest- rate moves.

The dollar rose as much as 1.7 percent to $1.5611 per euro that week. It has since slumped as much as 2.7 percent as concern increased that Fannie Mae and Freddie Mac, which buy or finance almost half the $12 trillion of U.S. mortgages, would need to be rescued by the U.S. government.

The Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, fell for a fifth day on the ICE market to 71.334, the lowest since April 23, from 71.915.

Bernanke will give his semiannual testimony on monetary policy and the economy before the Senate Banking Committee at 10 a.m. Washington time. A separate hearing at the committee with Paulson, and Securities and Exchange Commission Chairman Christopher Cox on financial markets, is scheduled for about 11:30 a.m.

"The reality is the U.S. housing market and credit squeeze haven't hit bottom yet,'' said Takuma Kurosawa, global markets treasurer in Tokyo at HSBC Bank, a unit of Europe's biggest lender. "That's discouraging investors from holding dollar assets.''

Losses and Writedowns

Global banks and securities firms have reported losses and writedowns of more than $400 billion as the subprime-mortgage market collapsed.

The British pound was bolstered by expectations accelerating inflation will keep the Bank of England from lowering interest rates to avert a recession.

Consumer prices climbed 3.8 percent from a year earlier, exceeding the government's 3 percent upper limit for a second month and the highest level since records began in 1997, the Office for National Statistics said today in London. Economists forecast 3.6 percent, according to the median of 36 estimates in a Bloomberg News survey. The pound was at $2.0107, from $1.9951 yesterday.

Japan Rates

The Swiss franc rose to within half a cent of parity with the U.S. dollar and the Japanese yen strengthened as investors reversed purchases of higher-yielding assets financed with loans in Switzerland and Japan.

Against the dollar, the franc rose as much as 1.4 percent to 1.0021 before trading at 1.0044, from 1.0161 yesterday.

The yen stayed higher after the Bank of Japan kept interest rates at 0.5 percent today, the lowest among major economies, as expected by all 39 economists surveyed by Bloomberg News.

The world's second-largest economy will grow 1.2 percent in the year ending March 31, slower than the 1.5 percent forecast on April 30, the central bank said in a statement in Tokyo. Consumer prices excluding fresh food will climb 1.8 percent, more than the 1.1 percent projected three months ago, it said.