Dollar wilts against euro ahead of Fed rate decision

The dollar wilted against the euro Monday ahead of an expected Federal Reserve decision to leave US interest rates on hold and on news that US consumer spending cooled in June. The single European currency in late European trade was at 1.5570 dollars against 1.5555 late Friday in New York. The dollar rose against the yen, trading at 107.99 after 107.68 on Friday. The Federal Reserve will issue its rate decision on Tuesday, followed by the European Central Bank and the Bank of England on Thursday. All three are expected to leave rates on hold as they grapple with rising inflationary pressures at a time when economic growth is slowing. "A shift in the current monetary stance is likely to be a story for 2009 rather than 2008," said analyst Derek Halpenny of Bank of Tokyo-Mitsubishi Analysts at Barclays Capital said they were "in line with the consensus in expecting policy rates to be left on hold." They added that an accompanying statement from the Fed was likely to show that US policymakers might be more open to lowering rates in the future than their counterparts at the ECB. The dollar was also affected Monday by a government report that US consumer spending had eased in June, when inflationary pressures accelerated strongly in the face of higher food and energy costs. Weaker spending patterns would likely discourage the Fed from raising rates. A rise in US interest rates would make the dollar more attractive to investors. The monthly Commerce Department snapshot also showed that US incomes moderated in June after both spending and income got a hefty boost in May from a vast emergency economic stimulus. Consumer spending rose 0.6 percent in June from May while incomes rose a mild 0.1 percent, marking the weakest gain in incomes since April 2007. Both readings were nonetheless stronger than expected as most economists had forecast that spending increased 0.5 percent and incomes contracted 0.1 percent. On the inflation front, the PCE (personal consumption expenditures) price index spiked 0.8 percent in June -- its strongest monthly gain since 1997 -- following a gain of 0.5 percent in the prior month. The core PCE rate, which strips out volatile food and energy costs, increased 0.3 percent, its biggest increase since September of last year. Elsewhere, the pound was under pressure as investors took stock of a rapidly weakening British economy. The pound was reacting to weaker-than-expected British construction data and a report in the Independent on Sunday that mortgage specialist Halifax would disclose an annual fall in house prices of over 10 percent when it announces its latest monthly survey this week. In London trade on Monday, the euro changed hands at 1.5570 dollars against 1.5555 late on Friday, 168.65 yen (167.52), 0.7935 pounds (0.7874) and 1.6315 Swiss francs (1.6327). The dollar stood at 107.99 yen (107.68) and 1.0449 Swiss francs (1.0497). The pound was at 1.9750 dollars (1.9753). On the London Bullion Market, the price of gold dipped to 905.75 dollars per ounce at the fixing from 912.50 dollars late on Friday.