By Ben Levisohn Feb. 20 (Bloomberg) -- The dollar posted its sixth straight weekly gain against the euro, the longest streak since 2000, as investors speculated on when the Federal Reserve would withdraw monetary stimulus after it raised the discount rate on Feb. 18. The euro touched a nine-month low versus the dollar after European finance ministers on Feb. 15 ordered Greece to prepare new deficit-cutting measures in case the government can’t show sufficient progress in reducing the shortfall by March 16. The dollar rose the most in seven weeks against the yen before Fed Chairman Ben S. Bernanke delivers his semi-annual report on the economy and interest rates to House and Senate panels next week. “The dollar should continue to do well against weaker G10 currencies like the euro, the yen and the pound,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. The discount rate hike “was an important first step on the way to policy normalization.” For the week the dollar gained 0.14 percent to $1.3613 per euro, from $1.3632 on Feb. 12, its sixth consecutive weekly gain. That’s the longest streak since a six-week period ending in August 2000. It reached $1.3444 yesterday, the strongest level since May 18. The dollar advanced 1.7 percent to 91.62 yen, from 89.96 last week, the biggest gain since the five days ended Jan. 1. The euro rose 1.6 percent to 124.58 yen, from 122.62. ‘Further Normalization’ The U.S. currency surged against its most-traded peers after policy makers on boosted the rate charged to banks for direct loans to 0.75 percent from 0.50 percent, the clearest signal yet that they are ready to withdraw the unprecedented measures used to combat the financial crisis. The Fed also said “the typical maximum maturity for primary credit loans will be shortened to overnight” from March 18. “These changes are intended as a further normalization of the Federal Reserve’s lending facilities,” the board said in a statement yesterday. The moves “do not signal any change in the outlook for the economy or for monetary policy,” the Fed said. The dollar’s gains were tempered after Fed Bank of St. Louis President James Bullard said the view that borrowing costs will increase this year is “overblown.” Atlanta Fed President Dennis Lockhart said the decision doesn’t signal a tightening of policy. The cost of living in the U.S. rose in January less than anticipated and a measure of prices excluding food and energy fell for the first time since 1982, Labor Department figures showed yesterday. The consumer-price index increased 0.2 percent, compared with the median forecast for a 0.3 percent increase in a Bloomberg survey. Excluding energy and food, the index unexpectedly fell 0.1 percent. Unable to Control “The CPI report adds some credence to the commentary from Bullard and Lockhart,” said Andrew Busch, a global currency strategist at Bank of Montreal in Chicago. “But when the Fed raises an interest rate, even the discount rate, it’s tightening policy. The U.S. is attempting to exit extreme monetary policy looseness. That should boost the dollar versus the euro.” Futures contracts on the Chicago Board of Trade show traders place odds at 70 percent that the Fed will lift the target rate for overnight loans by November to at least 0.5 percent, up from 65 percent a week ago. Fed officials last month forecast growth of 2.8 percent to 3.5 percent, and minutes of their January meeting showed they are seeking more evidence the recovery is sustainable. The euro fell versus the dollar on speculation Greece will be unable to control its fiscal deficit, diminishing the allure of the region’s assets. ‘Inevitable Breakup’ Concern that the nation’s inability to narrow a budget gap that is more than four times the European Union limit will be replicated in some other countries prompted Societe Generale SA’s top-ranked strategist Albert Edwards to predict Feb. 12 that the euro region was poised to break up. The problem for countries including Portugal, Spain and Greece “is that years of inappropriately low interest rates resulted in overheating and rapid inflation,” Edwards wrote. Even if governments “could slash their fiscal deficits, the lack of competitiveness within the euro zone needs years of relative (and probably given the outlook elsewhere, absolute) deflation. Any help given to Greece merely delays the inevitable breakup of the euro zone.” The pound declined on concern the Bank of England will be forced to continue measures to revive Britain’s economy as other central banks withdraw emergency stimulus. Retail sales excluding gasoline fell 1.2 percent in January from December, the Office for National Statistics said yesterday in London. Economists predicted a 0.5 percent drop. “The U.K. press is talking about the situation being worse than Greece,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. The U.K. “could step back into recession during the first quarter. They’ve kept the door open to further quantitative easing. That’s why the pound is falling.” Sterling fell 1.5 percent to $1.5464, from $1.5701 last week. To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net.

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