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. Last Updated: 07/27/2016

No Relief in Sight for Battered Dollar

LONDON -- The dollar fell to a record against the euro for a seventh straight trading day in London on Monday and dropped to its weakest in three years versus the yen on speculation that the U.S. Federal Reserve will keep interest rates at a 45-year low, reducing the appeal of investing in the United States.

Fed policymakers will keep their target rate at 1 percent Tuesday, according to all 77 economists surveyed by Bloomberg News, half the European Central Bank's rate. The Fed said in August that it can keep rates low for "a considerable period."

"Until we see a turn in the U.S. interest-rate cycle, there will be no relief for the dollar," said Adam Cole, a currency strategist in London at Credit Agricole Indosuez.

Against the euro, the dollar fell as low as $1.2184, according to foreign exchange brokerage EBS's prices, from $1.2170 late Friday in New York. It was at 107.58 yen from 107.70 on Friday. The U.S. currency earlier weakened to 107.51 yen, and was last at that level in November 2000.

The dollar may drop to $1.30 per euro by the middle of 2004, Cole said.

Currencies with higher rates, such as the Australian dollar and the British pound, are benefiting as investors seek greater returns. In Australia, where the central bank's key rate is 4.25 percentage points more than the Fed's rate, the local dollar rose to its highest in more than six years.

"Funds have flown to countries with higher interest rates," said Hiroyuki Yamada, who helps manage $1 billion in overseas debt at Daiwa SB Investments Ltd. in Tokyo. The U.S. currency may fall to $1.23 per euro this week, he said. Yamada holds less dollar-denominated assets than the benchmark index he follows and more euro- and Australian dollar-denominated assets.

Investors will focus tomorrow on whether the Fed removes from its statement a commitment to keep rates low "for a considerable period." Twelve of the 22 so-called primary U.S. government securities dealers expect the Fed to drop the phrase.

"If it does drop it, then we could see a rally in the dollar to below $1.20 against the euro," said Steve Barrow, senior currency strategist in London at Bear Stearns. "Though it would be a short-lived rally."

Sixty-nine percent of the 54 strategists, investors and traders polled Friday from New York to Tokyo advised buying or holding the euro against the dollar this week. Similar surveys predicted the dollar's fall against the euro in the past three weeks.

The yen also rose against the dollar on investors' expectations that Japan's economy is strengthening. The Japanese currency has climbed 10.4 percent against its U.S. counterpart this year.

The Bank of Japan's quarterly Tankan index of business confidence rose to its highest level in three years, a report Friday will probably show, according to the median prediction of 40 economists in a Bloomberg News survey.

Foreign investors have been net buyers of stocks for 30 of the past 33 weeks, the Finance Ministry said last week. The Bank of Japan has responded to the yen's 10 percent rise this year by selling record amounts of its currency.

The Tankan "will support Japan's recovery story and help the yen," said Jake Moore, currency strategist in Tokyo at Barclays Capital Inc. "Any positive news and you get the BOJ sitting on the other side, but it can only slow the move. It can't stop the yen's strength."

The Bank of Japan, on behalf of the Finance Ministry, sold a record 17.8 trillion yen ($165.2 billion) this year. Zembei Mizoguchi, Japan's vice finance minister for international affairs, said the government would "take action as needed" in the foreign exchange market.

Japan does not set a specific target for the yen, said Hiroshi Watanabe, head of the Finance Ministry's international department, according to the Independent newspaper.