By Ron Harui and Candice Zachariahs Sept. 23 (Bloomberg) -- The dollar fell to a one-year low against the euro and weakened versus the yen on speculation the global economic recovery is gathering strength, encouraging investors to buy higher-yielding assets. The greenback slid to the weakest in 13 months against New Zealand’s dollar after a government report showed the South Pacific nation’s economy unexpectedly expanded for the first time in six quarters. The dollar slid versus 15 of its 16 major counterparts as economists forecast the Federal Reserve will today keep its benchmark interest rate between zero and 0.25 percent and signal it intends to hold down borrowing costs. “The improving global picture tends to produce selling of the dollar,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “Our view is that the Fed won’t change its statement, so we’d be very surprised if they changed the reference to exceptionally low levels of the fed funds rate.” The dollar declined to $1.4809 per euro as of 1:15 p.m. in Tokyo from $1.4790 in New York yesterday, after earlier falling to $1.4842, the lowest level since Sept. 22, 2008. The U.S. currency dropped to 1.0224 Swiss francs, after earlier sliding to 1.0189 francs, the weakest since July 22, 2008. The yen climbed to 90.77 per dollar from 91.10, and rose to 134.43 per euro from 134.76. New Zealand’s dollar advanced to as high as 73.12 U.S. cents, the strongest since Aug. 4, 2008, before trading up 1 percent at 72.64 cents. New Zealand Dollar The so-called kiwi rose against all of the 16 major currencies after Statistics New Zealand said gross domestic product grew 0.1 percent in the three months to June 30, following a 0.8 percent drop in the first quarter. A Bloomberg News survey of economists forecast a 0.2 percent contraction. “Early in the session the market was looking for direction and the kiwis gave it,” said Tony Bieber, a foreign-exchange trader at Suncorp-Metway Ltd. in Brisbane. “The kiwis are leading the charge against the U.S. dollar.” Traders are betting the Reserve Bank of New Zealand will raise its benchmark interest rate by 1.53 percentage points over the next 12 months, compared with a prediction for 1.36 percentage points yesterday, according to a Credit Suisse Group AG index based on overnight swaps. Fed Meeting The Federal Open Market Committee will probably maintain its assessment that “tight” bank credit is impeding growth, said economists including former Fed Governor Lyle Gramley. Lending contracted for five straight weeks through Sept. 9, a drop that in part reflected Fed orders to banks to raise more capital and toughen lending standards, analysts said. All 93 economists surveyed by Bloomberg said the Fed won’t change interest rates at its two-day meeting ending today. Chairman Ben S. Bernanke and his colleagues may discuss how to wind down purchases of mortgage-backed securities, analysts said. “You’ve obviously got some risks with the Fed, but unless they come out and surprise with being hawkish, which I don’t think they will, it’s another reason dollar bears will feel comfortable with their position,” said Phil Burke, chief foreign-exchange dealer at JPMorgan Chase Bank in Sydney. Futures contracts on the Chicago Board of Trade show a 41 percent chance the Fed will keep rates unchanged through March, up from a 27 percent chance one month ago. The Dollar Index, which the ICE uses to track the dollar against the currencies of six major U.S. trading partners, dropped to as low as 75.912, the weakest since Sept. 22, 2008, before trading 0.2 percent down at 75.961. Yen Gains The yen gained for a second day against the dollar on speculation world leaders attending a Group of 20 meeting this week will signal currencies other than the dollar need to strengthen to help rebalance global economic growth. Policy makers need to promote a “sustained growth track and facilitate global adjustment, as well as structural reform which will need to be undertaken in both deficit and surplus countries,” Dimitri Soudas, a spokesman for Canadian Prime Minister Stephen Harper, told reporters in Ottawa on Sept. 21. The G-20 meeting starts tomorrow in Pittsburgh. “The dollar remains under selling pressure as the G-20 summit moves toward reforming the international monetary system,” Philip Wee, a senior currency economist in Singapore at DBS Group Holdings Ltd., wrote in a research note today. Losses in the dollar were tempered after Italian Prime Minister Silvio Berlusconi and Australian Prime Minister Kevin Rudd wrote to U.S. President Barack Obama urging him to lead the fight against financial speculation and make it the center of the G-20 summit. “We would like to bring financial speculation and market manipulation, particularly for raw materials, to the center of the debate,” Berlusconi and Rudd said in their letter, a copy of which was posted on the Italian leader’s Web site. Commodities The Reuters/Jefferies CRB Index of 19 commodities rose the most in a week yesterday. Crude oil traded near $72 a barrel after climbing 2.6 percent yesterday. “Back in mid-June, the G-8 meeting revealed clear evidence of disquiet in commodity prices,” Sue Trinh, a senior currency strategist in Sydney at RBC Capital Markets, wrote in an e-mail to Bloomberg today. “Following that June communiqué, major commodity indices slumped around 10 percent in the following week. In foreign exchange, risk proxies followed commodity prices lower.”

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