The dollar declined before a U.S. report that economists said will show consumer prices fell in May, strengthening the case for the Federal Reserve to take more steps to bolster the economy. The U.S. currency declined versus 13 of its 16 major counterparts ahead of data tomorrow forecast to show industrial production almost stalled in May and manufacturing in the New York region slowed this month. Gains in the euro were tempered after Spanish bonds slumped after Moody’s Investors Service cut the nation’s credit rating and Italy’s borrowing costs rose. New Zealand’s dollar strengthened after the central bank left interest rates unchanged. “There’s nothing about the U.S. data that makes you want to own the dollar,� said Kit Juckes, head of foreign-exchange research at Societe Generale SA in London. “You’ve got an economy that’s growing slowly, an inflation rate that’s going to come lower, and a central bank with an itchy finger to give us more quantitative easing.� The dollar depreciated 0.2 percent to $1.2579 per euro at 6:33 a.m. in New York after dropping 0.6 percent in the previous two days. The U.S. currency weakened 0.2 percent to 79.32 yen. The euro was little changed at 99.94 yen. U.S. consumer prices fell 0.2 percent lasts month from April, the biggest drop since December 2008, according to the median estimate in a Bloomberg News survey before today’s Labor Department report. ‘Significant Risks’ “The situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely,� Fed Chairman Ben S. Bernanke told lawmakers on June 7. “As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate.� The Fed bought $2.3 trillion of bonds in two rounds of so- called quantitative easing from 2008 through 2011 to stimulate growth through lower borrowing costs. Moody’s yesterday cut Spain’s rating three steps to Baa3, one level above junk, citing its increased debt burden, weakening economy and limited access to capital markets. The Spanish 10-year yield climbed as much as 25 basis points, or 0.25 percentage point, to a euro-era record 6.998 percent. Italy sold 3 billion euros of three-year notes today at a yield of 5.3 percent, from the 3.91 percent at the previous auction on May 14, and the highest since December. The country also auctioned debt due in 2019 and 2020. The euro has weakened 1.5 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. Australia’s dollar was the worst performer, losing 2.9 percent, and New Zealand’s slid 1.9 percent. The New Zealand dollar gained 0.7 percent to 77.81 U.S. cents, and advanced 0.5 percent to 61.72 yen. To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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