The dollar fell against the euro for a third day on speculation the Federal Reserve will trail the European Central Bank in tightening monetary policy. The Dollar Index dropped before the U.S. central bank today releases minutes from its April 26-27 meeting after which Chairman Ben S. Bernanke signaled the economy still requires monetary support. The euro was supported by prospects the ECB will raise interest rates even as the region’s debt crisis persists. New Zealand’s dollar advanced for a second day versus the greenback after a report showed producer prices rose in the first quarter. “We don’t hear any talk about rate increases in the U.S., while such expectations are supporting the euro,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The Fed is printing dollars aggressively, but we have yet to see inflation concerns rise. That means the U.S. is far away from exiting stimulus measures.” The greenback fell to $1.4266 per euro as of 6:50 a.m. in London from $1.4237 yesterday in New York. The dollar weakened to 81.10 yen from 81.42 yen. Japan’s currency fetched 115.71 per euro, after touching 116.41, the lowest since May 11. The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, declined 0.2 percent to 75.223. Rate Expectations Swaps traders are betting the ECB will raise its target rate by 96 basis points over the next 12 months, a Credit Suisse AG index showed. Another index forecasts 32 basis points of increases by the Fed for the same period. “People are expecting another rate increase by summer” from the ECB, said Keiji Matsumoto, a currency strategist in Tokyo at SMBC Nikko Securities Inc. “That’s acting as a buffer against the euro’s decline, while the fiscal issue weighs on the currency.” Bernanke, at his first press conference following a policy decision last month, said the economy still requires monetary support while the need to contain inflation means further easing is unlikely. Fed policy makers kept the target rate for overnight lending between banks at zero to 0.25 percent. The rate has remained at that level since December 2008. The dollar has lost 4.3 percent this year, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has weakened 4.3 percent, while the euro is up 2.7 percent, the gauges show. Greece’s Debt European finance ministers for the first time floated the idea of talks with bondholders over extending Greece’s debt- repayment schedule. Europe would consider “reprofiling” Greek bond maturities as part of a package including stepped-up sales of state assets and deeper spending cuts, Luxembourg Prime Minister Jean-Claude Juncker said May 16. “Policy makers are putting off the issue of Greece, and nothing has been decided,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., Japan’s second-largest publicly traded lender. “I expect the euro to drop below $1.40 by June and stay below that level.” The U.S. currency also weakened versus the yen as the yield premium on the U.S. bonds over Japan’s shrank, curbing the relative allure of the nation’s assets. The extra yield investors demand to hold 10-year U.S. bonds instead of similar-maturity Japanese debt narrowed to 1.97 percent from 2.11 percent on May 12. Japan’s Economy Contracting The yen earlier touched a one-week low against the euro before a report tomorrow forecast to show Japan’s economy shrank in the first quarter. Japan’s gross domestic product contracted an annualized 1.9 percent in the three months ended March 31 after shrinking 1.3 percent in the previous quarter, according to a Bloomberg survey of economists. The report may bolster bets the Bank of Japan will trail its counterparts in normalizing monetary policy. The central bank is set to end a two-day policy meeting on May 20. “Market participants are sensitive to monetary policy outlooks,” said Junichi Ishikawa, a Tokyo-based　market analyst at IG Markets Securities Ltd. “When it comes to exit strategy, Japan is far behind. That weighs on the yen.” New Zealand’s dollar advanced after Statistics New Zealand said today producer input prices gained 2.2 percent in the first three months of the year from the prior quarter, and output prices advanced 1.7 percent. New Zealand’s currency rose to 78.81 U.S. cents from 78.49 cents. The so-called kiwi was at 63.94 yen from 63.90 yen. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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