Euro surges past dollar
BERLIN (AP) – The dollar fell to multiyear lows against its major foreign rivals Monday amid persistent worries over the U.S. economy, setting a new low against the euro for the seventh consecutive day. The euro surged above $1.22 Monday in a rally that has seen the currency’s value against the dollar rise by more than 16 percent this year.
The new euro high is more of a sign of a weak dollar rather than any strengthening of the European common currency shared by 12 countries.
The dollar also sank to an 11-year low against the pound, which hit a high of $1.7361, and a three-year low against the yen, with a dollar buying 107.18 yen in late European trading. The dollar was steady at 107.17 yen in midday trading in New York, and the pound was worth $1.7325.
The weaker dollar makes life tougher for U.S. tourists or Americans working overseas, but helps U.S. exporters by making their goods cheaper against foreign competition. On the other side of the equation, too strong a euro or yen could hurt Europe and Japan’s fledgling economic recovery.
The United States needs foreigners to buy U.S. assets such as stocks and bonds to offset the effects of the budget and trade deficits on the dollar. Bad economic news can discourage investment and therefore push the currency down.
Some said the fall of the dollar, which slipped as far as $1.2238 to the euro before strengthening slightly, has taken on a momentum of its own.
Traders remain skeptical about recent signs of recovery for the U.S. economy, especially against the backdrop of the U.S.-led occupation of Iraq and the possibility of another terrorist strike.
“It’s kind of a bull run in the market,” said Kornelius Purps, a financial markets analyst for HypoVereinsbank in Munich.
“The perception is that there is only one way for the euro to go, and that’s up.”
The euro passed the previous high of $1.2169, set Friday after the release of disappointing U.S. job figures. It was the seventh consecutive business day since Nov. 28 the currency traded at a new high – a trend analysts saw continuing at least into early next year.
Investors will be watching Tuesday when the U.S. Federal Reserve makes its decision on whether to keep interest rates at a 45-year low. It is widely expected to leave them unchanged until the jobs outlook improves, though raising rates could bolster the dollar.
“The devaluing currency has good advantages for the U.S. economy and therefore for the administration,” Purps said.
“In the short term it’s hard to say what will happen, but I think in the long term central banks and authorities worldwide will be rather happy as long as the exchange rate does not exceed euro1.30 to the dollar.”
Purps said that rate could be reached within two months, and he would then expect intervention from either the European Central Bank or the Fed.
U.S. Treasury Secretary John Snow has declined to say whether the United States would intervene in an attempt to slow the dollar’s drop. The administration says it has a strong dollar policy, but many observers think it is not unhappy over the decline since it could help exporters and therefore growth.
Christoph Mueller, an analyst with DZ Bank in Frankfurt, said he thinks markets are beginning to be encouraged by the new U.S. data that shows signs of a recovering economy, though job growth is lagging a bit. He predicted a U.S. interest rate hike in April and then again later in 2004, strengthening the dollar against the euro.
“The turnaround will start in three months, then we’ll have a euro-dollar relationship of euro1.25 to the dollar, and in a year a relationship of euro1.10 to the dollar,” Mueller said.
AP-ES-12-08-03 1233EST