Dollar Plunges To New Lows!

July 18 (Bloomberg Business News ) -- The dollar dropped to a record low against the euro after Bear Stearns Cos. reported hedge fund losses, fueling speculation investors will spurn U.S. assets as the economy slows.

The currency also fell against the yen as investors scaled back carry trades, where they buy higher-yielding securities with money borrowed in Japan. Federal Reserve Chairman Ben S. Bernanke may be asked about financial industry losses caused by mortgage defaults when he testifies before Congress today.

``The subprime woes may weigh on the broader U.S. economy,'' said Yuji Saito, head of the foreign-exchange sales department at Societe Generale SA in Tokyo. ``There's a bias for selling the dollar.''

The dollar declined to an all-time low of $1.3822 against the euro before trading at $1.3805 at 10:27 a.m. in Tokyo from $1.3781 in New York yesterday. It dropped to 121.92 yen from 122.34. The U.S. currency may decline to $1.3830 per euro and 121.50 yen today, Saito said.

The dollar reached a 26-year low of $2.0495 against the pound. It weakened to 87.61 cents against the Australian dollar, the lowest since February 1989. The dollar has fallen against 15 of the 16 most-active currencies since Bear Stearns said June 22 it had to bail out its hedge fund because of losses on securities backed by subprime loans. "It's bad for business."

Bernanke's Testimony

Interest-rate futures today showed 30 percent odds the Fed will lower borrowing costs from 5.25 percent in December, up from a 21 percent chance yesterday.

Bernanke will deliver his semi-annual testimony on the U.S. economy to the House at 10 a.m. in Washington. He will also speak in the Senate tomorrow at 9:30 a.m.

House Financial Services Committee Chairman Barney Frank threatened last month to strip the Fed of its regulatory authority if it doesn't do more to protect borrowers. Lawmakers and consumer groups have blamed mortgage brokers for abuses that have left a record number of people at risk of losing their homes.

``Bernanke is going to be grilled on this issue and the broader repercussions,'' said Jason Evans, head of U.S. government bond trading at Deutsche Securities Inc. in New York. ``How he handles that question will determine how rates are going to move.''

Wait Until September

Any gains in the yen may be limited by speculation the Bank of Japan will delay raising interest rates while it gauges the impact of subprime loan defaults. The U.S. is Japan's largest export market.

Some BOJ board members said it's necessary to watch the U.S. housing market, according to minutes released today from a meeting held June 14-15. Some policy makers also said lower oil prices are placing ``stronger downward pressure'' on consumer prices, the minutes showed.

The central bank's nine board members voted unanimously at that meeting to leave interest rates at 0.5 percent. The BOJ decided 8-1 to keep policy on hold at a meeting July 12.

``The market has priced in a rate increase in August, but the BOJ may not move until September,'' said Kengo Suzuki, a currency strategist at Shinko Securities Co. in Tokyo. ``The minutes show more uncertainty about the U.S. economy and Japanese inflation. The yen could be sold'' to 124 against the dollar and 174 per euro by year-end, he said.