Dollar drops as Fed signals no change in rates

The dollar fell for a second day against the euro as traders increased bets the US Federal Reserve will keep its target interest rate near zero to sustain a recovery in the world's biggest economy.

The US currency weakened against 15 of its 16 major counterparts after Fed Bank of Dallas President Richard Fisher said borrowing costs should remain low until the economy picks up, which won't happen "for some time".

The dollar dropped to $1.3639 per euro in London from $1.3615 in New York overnight, when it rose to $1.3436, the strongest since May 18. The greenback traded at ¥88.85 from ¥88.85 after earlier declining to ¥88.48, the lowest since December 14.

The dollar also touched its lowest in more than two months against the yen yesterday as investors dumped long positions against other currencies that had built up to levels not seen in more than a year.

But sterling leapt versus the dollar yesterday as investors decided the pound's slide this week to a 10-month low had gone too far. The euro also rose against the greenback as investors trimmed record short positions in the single currency that had pushed it to its lowest in more than nine months the previous day, and ahead of a possible European debt plan to support Greece.

But traders say the euro may continue to struggle as there are no concrete signs of European aid for Greece yet.

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