Dollar Rises on Speculation

The dollar rose to a one-year high against the euro on speculation that growth in Europe will slow more than in the U.S., prompting the region's central bank to cut interest rates.

The U.S. currency climbed for a second day as traders increased bets on a European Central Bank rate reduction before a government report tomorrow that economists say will show industrial production in the euro area shrank. New Zealand's dollar dropped to its lowest level since October 2006 after Alan Bollard, governor of the nation's central bank, lowered borrowing costs by more than economists expected.

``The overall drivers of the foreign-exchange markets are positive for the U.S. dollar,'' said Sue Trinh, a currency strategist at RBC Capital Markets in Sydney. ``Markets have been driven by a narrowing in the expectations of the growth differential between the U.S. and the rest of the world.''

The U.S. currency climbed to $1.3933 per euro, the strongest since Sept. 18, 2007, before trading at $1.3965 as of 7:25 a.m. in London from $1.3998 late yesterday in New York. The dollar will strengthen to $1.3830 per euro in coming weeks, Trinh said. Japan's currency advanced to 149.87 per euro, the highest since Aug. 17, 2007, and was last at 150.07 from 150.75. It also gained to 107.45 per dollar from 107.70.

The New Zealand dollar declined to as low as 64.95 U.S. cents before trading at 65.11 cents, down 2.5 percent from late Asian trading yesterday. The Reserve Bank of New Zealand cut its benchmark interest rate by half a percentage point to 7.5 percent, saying the economy is in a recession.

Risk Aversion

The ICE's Dollar Index touched 80.25 today, the highest since September 2007, when the U.S. central bank began cutting the target rate for overnight lending between banks from 5.25 percent to 2 percent to avoid a recession. The index, a gauge measuring the dollar against the currencies of six U.S. trading partners, reached a low of 70.698 on March 17.

The European Commission said yesterday the euro region's economy will probably stagnate this quarter after shrinking the previous three months for the first time since the currency's debut in 1999. It cut its 2008 growth forecast to 1.3 percent, from 1.7 percent. By contrast, the median in a Bloomberg News survey of 84 economists was for U.S. growth of 1.7 percent.

Volatility Rises and more..