The dollar fell the most against the euro since March as widening credit market losses and record oil prices encouraged traders to reduce speculation that the Federal Reserve will raise borrowing costs before September.

The greenback declined this week versus all of the other major currencies as Citigroup Inc. predicted that it will incur ``substantial'' additional write-downs. The Fed is forecast by economists to keep its target lending rate at 2 percent at next week's policy meeting, the lowest since November 2004.
``The market came to the realization that while the Fed might like to hike rates, it cannot do so,'' said Win Thin, a currency strategist at Brown Brothers Harriman & Co. in New York, in an interview on Bloomberg Television. ``The dollar is vulnerable. It's possible we can retest $1.60.''
---------The biggest drop
The dollar fell 1.5 percent to $1.5609, from $1.5380 on June 13, the biggest drop since the week ended March 28. It touched $1.6019 on April 22, the weakest since the 15-nation euro debuted in 1999.
The dollar decreased 0.8 percent to 107.28 yen, from 108.19 a week earlier. The euro rose for a sixth straight week against the yen, in the longest gain since May 2007, increasing 0.7 percent to 167.50. It touched an 11-month high of 168.13.
Mexico's peso advanced to a five-year high of 10.2677 per dollar yesterday and increased 0.8 percent this week as the central bank raised its benchmark interest rate by a quarter- percentage point to 7.75 percent. Eighteen out of 26 economists surveyed by Bloomberg News predicted Banco de Mexico would hold interest rates steady.
The Australian and New Zealand dollars rose this week on speculation the countries will maintain their yield advantage over the U.S. The target lending rates are 7.25 percent in Australia and 8.25 percent in New Zealand. Both currencies rose 1.6 percent against the dollar, the biggest gain since March. The Aussie traded at 95.44 U.S. cents, while the kiwi, as the New Zealand dollar is known, was at 76.20 U.S. cents.
The dollar erased more than half of last week's 2.5 percent gain against the euro, the biggest since 2005. Fed Chairman Ben S. Bernanke said on June 9 that economic risk had faded.
Futures on the Chicago Board of Trade showed an 8 percent chance the Fed will raise the target rate for overnight lending between banks by a quarter-percentage point on June 25, compared with 22 percent odds a week ago. The odds of an increase in August also fell.
Citigroup Chief Financial Officer Gary Crittenden said in a June 19 conference call with investors that total credit costs, including loan write-offs and reserves for future losses, may exceed those reported for the first quarter.
----------- Credit losses
The bank has booked more than $42 billion of credit losses and write-downs since last year because of the credit market contraction, or about 10 percent of the $396 billion racked up by banks worldwide.
On the same day, the S&P 500 Regional Banks Index fell to the lowest level since at least 2003, and Moody's Investors Service downgraded bond insurers MBIA Inc. and Ambac Financial Group Inc. Seventy-six banks bid at the Fed's auction of $75 billion in Term Auction Facility loans on June 16, the most since April 21, when 83 submitted offers.
``It's not an environment where the Fed could raise rates yet,'' said David Powell, currency strategist at Bank of America Corp. in New York. ``It's likely to weigh further on the dollar.''
The U.S. currency also declined versus the euro this week as crude oil reached a record $139.89 on June 16. The correlation of the dollar versus the euro and oil prices is minus 0.93 for the past year, indicating they move in the opposite direction 93 percent of the time, according to Bloomberg calculations based on value changes. The euro rose against the yen as Germany's Federal Statistics Office said that producer price inflation accelerated to an annual rate of 6 percent last month.
The European Central Bank is in a state of ``heightened alertness'' after food and energy costs soared, executive board member Juergen Stark said yesterday in a speech in Bad Homburg, Germany. ECB President Jean-Claude Trichet said on June 5 that the bank may increase its 4 percent main refinancing rate by a quarter-percentage point next month.
``Commodities remain bid, and the ECB remains hawkish,'' said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York. ``The market is still in a sell-the-dollar-mode.''
(Source: Bloomberg)