NEW YORK (Bloomberg) — The dollar fell the most against the euro since January 2006, pushing it down from a one-year high, on reduced demand for the greenback as a haven.

The euro, the Brazilian real and the pound advanced versus the yen as Lehman Brothers Holdings Inc. negotiated with potential buyers, encouraging investors to reduce bets against higher-yielding assets. The dollar also declined versus the euro as traders increased speculation that the Federal Reserve will cut borrowing costs by the end of the year.

"The market has been moving toward unwinding some of the recent trends," said Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., a unit of Canada's second-biggest bank. "There's a lot of uncertainty about where we will be Monday morning."

The dollar fell 1.6 percent to $1.4222 on Friday in New York, from $1.3998 on Thursday, when it touched $1.3882, the strongest since September 18, 2007.

The dollar has gained almost 12 percent since touching the all-time low of $1.6038 per euro on July 15 as the European economy slumped and crude oil dropped more than 30 percent to about $100.95 a barrel from its peak of $147.27.

That rally "has ended," and the dollar is poised to decline toward $1.50 per euro in the next several weeks after the European currency formed a "candlestick hammer" yesterday, said Andrew Chaveriat, a New York-based BNP Paribas SA analyst who uses charts to predict currency moves.

Such a pattern forms when a security or currency moves sharply lower after the opening of trading and then rebounds at the close of the day to where it started. The pattern often suggests a reversal of a trend.

The dollar's failure to strengthen beyond the resistance level of $1.3850 per euro also "leaves it vulnerable," Chaveriat said. Resistance is where sell orders cluster.

Brazil's real rose 1.8 percent to 60.19 yen and the pound climbed 2.3 percent to 192.71 yen as a potential sale of Lehman encouraged investors to reverse short positions on higher- yielding assets funded in Japan's currency. Japan's 0.5 percent target lending rate compares with 13.75 percent in Brazil and 5 percent in the UK. A short is a bet an asset will decline.

"The shift of Fed expectations is meaningful," said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. "It puts the Fed back into play. It's one factor that may put some floor under the euro-dollar."

Sales at US retailers fell 0.3 percent last month following a revised 0.5 percent drop in July, the Commerce Department reported today. The median forecast of 80 economists surveyed by Bloomberg News was for an increase of 0.2 percent. Producer prices dropped 0.9 percent in August, the Labor Department reported. The median forecast in a separate survey of economists was for a 0.5 percent decrease.

Friday's drop in the dollar versus the euro pared the US currency's weekly gain to 0.3 percent. The yen advanced 0.2 percent against the euro and was little changed versus the dollar for the week.

"The dollar has overshot in the short term," wrote Chris Turner, head of currency research in London at ING Groep NV, the largest Dutch financial-services company, in a research note.

The firm, citing "sharp slowing" in investment flows to Europe, forecasts that the US currency will increase to $1.45 per euro at the end of the third quarter and $1.48 by year-end, compared with the previous forecast of $1.55 for both periods.