The battered dollar endured three weeks of extended declines while Federal Reserve Chairman Ben S. Bernanke and other Fed officials indicated they are in favor of greater insurance protection against an economic slowdown within the sagging housing market. Klaus Liebscher, European Central Bank council member, believes there exists “significant” upside risks to inflation.
Others concurred, including Bilal Hafeez, global head of currency strategy at Deustsche Bank AG, the largest foreign-currency trader in the world. Says Hafeez, “In terms of the subprime crisis, the U.S. has been the center of the storm and it will have to pay.” According to Hafeez, “The euro will continue going higher.”
The dollar dropped to $1.4903 against the euro, the weakest since declining to a record low on Nov. 23, and was trading at $1.49 at 11:35 a.m. in London, from $1.4776 on Jan. 11 in New York. The euro traded at 160.39 Japanese yen, from 160.79 late last week. The dollar fell 0.3 percent against the British pound to $1.9634 from $1.9566.
The U.S. currency may trade at $1.55 by the end of the first quarter, said Hafeez, who is based in London. That compares with a median forecast of $1.47, compiled from reports by 45 strategists and economists. Investment banks including UBS AG, the world's second-biggest currency trader, cut their dollar forecasts last week.