Dollar hits record low vs. euro
Central currency gets closer to $1.30; further declines predicted due to budget, trade deficits.
November 8, 2004: 6:29 AM EST
LONDON (Reuters) - The dollar hit a new record low against the euro and a nine-year low on a trade-weighted index on Monday as investors continued to shun the greenback on worries over the United States' bloated deficits.
The dollar fell as low as $1.2985 to the euro in early trade and analysts said it was only a matter of time before it dropped through the psychological $1.30 level.
"The U.S. has a current account deficit, a budget deficit and a president who appears unconcerned about dollar weakness," said Shahab Jalinoos, senior currency strategist at ABN AMRO. "No one can see any reason to buy the dollar at the moment."
The latest leg of dollar weakness began last Wednesday as investors took the view the administration of re-elected President Bush would do little to alleviate the United States' twin deficits.
The U.S. budget deficit is about $427 billion, or 3.7 percent of gross domestic product, while its current account -- the broadest measure of trade -- hit a record $166.18 billion shortfall in the second quarter.
The dollar's weakness was broad based with the U.S. currency hitting a nine-year low against a basket of currencies below 83.80, a 12-year low against the Canadian dollar and multi-month lows against sterling and the yen.
"The euro/dollar's break of $1.30 is only a matter of time," said Naomi Fink, senior currency strategist at BNP Paribas. "It's just a question of momentum."
Bearish signals
The greenback's failure to gain any lasting benefit from Friday's upbeat U.S. jobs report was a further sign of how bearish the market had become.
"The market's moves since Friday confirm that the market is focusing on structural problems rather than cyclical improvements in the U.S. economy," said Kikuko Takeda, market analyst at Bank of Tokyo-Mitsubishi in Tokyo.
Top central bankers meeting in Basel said Sunday they were keeping a wary eye on currencies, but analysts said Japanese and euro zone policymakers were unlikely to step into the market to stop the dollar's fall at this stage.
The dollar fell to ¥105.30 in early European trade, its lowest since April but still some way off this year's low below ¥103.40.
Japan intervened heavily on the foreign exchanges, selling about ¥35 trillion ($332.2 billion) in 2003 through to March this year. But analysts say Tokyo is unlikely to repeat such a large scale campaign given the Japanese economy is now in better shape.
A weaker dollar helps combat inflation and cushion the impact of high oil prices and analysts reckon euro zone policymakers are also more tolerant of dollar weakness now than they were earlier in the year.
The dollar's best chance of a rebound in the near term is after the Federal Reserve's policy meeting on Wednesday, traders said.
The market has already priced in a rate rise of 25 basis points. But if the central bank indicates it will raise rates in December, that could help the dollar, as higher rates are likely to draw more foreign capital to the United States. |
