May 12, 2003 By David Mchugh Ap Business Writer 3 min read

FRANKFURT, Germany (AP) – The euro climbed to another four-year high Monday against the sinking U.S. dollar, inching closer to its all-time peak after U.S. Treasury Secretary John Snow said a weaker dollar would help U.S. exports. The 12-country currency hit $1.1621 in morning trading in Europe, then slipped back below $1.16 in the afternoon. It was its highest since Jan. 22, 1999, when it hit 1.1624.

Economists said Snow’s comments on a Sunday television broadcast in the United States set off the latest surge by indicating the U.S. government wouldn’t take steps to halt the dollar’s slide.

“When the dollar is at a lower level, it helps exports, and I think exports are getting stronger as a result,” Snow said.

U.S. manufacturing exporters have been pleading for a weaker dollar, since a strong currency means their goods are more expensive than those of foreign competitors, costing them business and squeezing profit margins.

The reason for the euro’s rise Monday “was Mr. Snow’s comments,” said economist Stefan Bielmeier at Deutsche Bank. “This is in line with other observations that the U.S. now has a weak dollar policy.”

Bielmeier said the euro’s climb was vindication for the many European economists who said it was undervalued on currency markets. The euro, which hit an all time low of 82 cents in October 2000, has now risen 35 percent against the dollar over the past 15 months.

The euro is now roughly three U.S. cents away from its all-time intraday high of $1.1884, reached on Jan. 4, 1999 three days after it was launched on financial markets.

Its highest daily average, as represented by the European Central Bank’s reference rate used as a benchmark for trade contracts and other transactions, is $1.1789, reached on the same day.

Behind the euro’s rise has been investor disenchantment with prospects for the U.S. stock market and economy.

When investors move their holdings out of U.S. assets and head for Europe, they must sell dollars – and that drives down the exchange rate.

One factor boosting the euro is higher short-term interest rates in Europe, the result of aggressive rate-cutting by the U.S. Federal Reserve. The Fed’s federal funds rate is now at 1.25 percent, its lowest in four decades, while the European Central Bank’s benchmark refinancing rate is 2.5 percent.

Long-term rates favor the euro too, with the German 10-year government bond yielding 3.89 percent annually against the equivalent U.S. Treasury bond at 3.65 percent.

The U.S.’s growing trade deficit – buying more from abroad than U.S. companies can sell – also undermines the dollar. For years, the effect of the trade deficit on the dollar was balanced off by investors pumping money into U.S. stocks during the boom of the late 1990s. But as investors have soured, it becomes more of a factor, economists say.