Euro Near 5 1/2-Month Low Against Dollar

The euro traded near a 5 1/2-month low against the dollar after a report showed Europe's economy contracted for the first time since the single currency was introduced almost a decade ago.

The European currency also declined against the British pound on concern the second-quarter data will prompt traders to cut bets on higher interest rates in the 15 countries that share the euro. The 14-day relative strength index of the euro versus the dollar still signaled its losses may be exaggerated.

The euro was at $1.4911 as of 6:37 a.m. in New York, from $1.4919 yesterday. It fell to $1.4816 two days ago, the weakest level since Feb. 26. The euro was also at 163.46 yen, from 163.43 yesterday, when it reached a three-month low of 161.40, and at 79. 63 British pence, from 79.76 pence. The dollar traded at 109.64 yen from 109.53 yen yesterday.

Europe's economy shrank 0.2 percent in the second quarter, after growing 0.7 percent in the first, the European Union's statistics office said from Luxembourg.

Further euro declines against the dollar may be limited on concern the financial turmoil and the housing slump in the U.S. may deepen. Bank repossessions in the U.S. almost tripled in July and foreclosure filings increased 55 percent from a year earlier as falling prices cut homeowner equity, said RealtyTrac Inc., California-based seller of foreclosure data.

The dollar surged 4.6 percent against Europe's common currency this month, enough to prompt Bank of America Corp. to tell its customers to exit trades betting on more gains. Morgan Stanley still forecasts the greenback will approach a record low by October as the housing slump and credit market losses keep the Federal Reserve from raising interest rates this year.

Euro Near 5 1/2-Month Low Against Dollar, Bloomberg
8/14/2008 6:33:00 AM