Dollar Trades Near Lowest in 2009 on Record-Low Borrowing Costs

Sept. 15 (Bloomberg) -- The dollar traded near the weakest level against the euro this year as record low borrowing costs encouraged investors to sell the greenback and buy higher- yielding assets outside the U.S.

The 16-nation currency may rise for a second-day against the dollar before a report forecast to show German investor confidence improved this month, signaling the recession in the region’s biggest economy is easing. Federal Reserve Bank of San Francisco President Janet Yellen said prospects for a “tepid” recovery require that policy makers guard more against inflation becoming too low rather than too high.

“The bulk of the liquidity created in the dollar is now shifting into non-U.S. assets amid signs of an easing of the recession,” said Akira Takeuchi, a Tokyo-based currency dealer at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh- largest banking group. “Without some signal that the U.S. is ready to pull back on monetary easing, the dollar will continue to weaken.”

The dollar traded at $1.4629 per euro at 7:57 a.m. in Tokyo from $1.4618 yesterday in New York where it reached $1.4653, the weakest level since Dec. 18. The yen was at 90.88 against the dollar from 90.94 yesterday when it touched 90.21, the strongest level since Feb. 12. The yen fetched 132.96 per euro from 132.94.

The cost of three-month loans in dollars between banks fell yesterday to a record low of 0.295 percent, according to the British Bankers’ Association. The London interbank offered rate, or Libor, slid below that of the Swiss franc on Sept. 8 for the first time since November.

‘Substantial Slack’

The Dollar Index traded near the lowest level in almost one year after Yellen said there’s a “fear,” which is “real, growing and disruptive,” that the Fed will be unable to withdraw its $1 trillion expansion of credit.

“We face an economy with substantial slack, prospects for only moderate growth, and low and declining inflation,” Yellen said yesterday in a speech in San Francisco. Until the time comes to raise interest rates, “we need to defend our price stability goal on the low side and promote full employment,” she said.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, was little changed at 76.653 yesterday. It dropped to 76.457 on Sept. 11, the lowest level since Sept. 25, 2008.

The U.S. target lending rate of zero to 0.25 percent compares with 8.75 percent in Brazil and 1.25 percent in Norway.

The euro rose against 12 out of the 16 most-active currencies as a Bloomberg News survey of economists showed that the ZEW Center for European Economic Research’s index of German investor confidence probably jumped to 60 this month, from 56.1 in August. The institution will release the data today.

Adding to signs the global gloom is easing, U.S. retail sales likely advanced 1.9 percent in August, following a 0.1 percent decline in the prior month, according to a separate Bloomberg News survey.