U.S. Dollar Weakens Against Euro Before Fed's Rate Decision

By Min Zeng and Lukanyo Mnyanda

Sept. 18 (Bloomberg) -- The dollar fell to within a half- cent of a record low against the euro before the Federal Reserve announces its interest-rate decision today, which investors expect will result in the first reduction since 2003.

Traders also sold dollars as U.S. producer prices fell more than forecast in August, diminishing concern over inflation. Japan's currency dropped as gains in U.S. stock futures encouraged traders to resume risky bets financed with borrowed yen. The Fed will probably limit its cut to support the economy, the first since June 2003, to 25 basis points, according to the median prediction of 134 economists surveyed by Bloomberg.

``If we do see less than the 50 basis points some people are expecting, we might see some benefit for the dollar,'' said Mitul Kotecha, head of currency strategy at Calyon in London. ``There's a significant minority looking for'' a half-point cut.

The dollar traded at $1.3881 per euro at 9:01 a.m. in New York, from $1.3867 yesterday. The dollar reached a record low of $1.3927 per euro on Sept. 13. The dollar advanced to 115.62 yen, from 115.12 yesterday.

Interest-rate futures show traders see a 50 percent chance of a cut to 4.75 percent, down from 76 percent odds a week earlier. Twenty-three of the 134 forecasters surveyed by Bloomberg News project a half-point move.

A government report showed U.S. producer prices fell 1.4 percent in August, following a 0.6 percent July gain. The median forecast in a Bloomberg News survey was for a 0.3 percent decrease. So-called core costs, which exclude food and energy, increased 0.2 percent.

A Treasury Department report showed foreign buying of U.S. financial assets slowed in July to the weakest pace in seven months. Total holdings of equities, notes and bonds increased a net $19.2 billion, compared with $97.3 billion the previous month, the Treasury Department said.

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