Euro drops below $0.90
Currency hit by signs of US economic
strength, expected Fed rate move
May 03, 2000: 5:04 a.m. ET
LONDON (CNNfn) - The euro drifted to a record low against the U.S. dollar on
Wednesday, falling below 90 cents, as traders speculated that upcoming
reports would underscore the faster rate of growth in U.S. economy compared
with the euro zone.
The 16-month-old European currency traded at $0.8987 Wednesday morning in
European trading, after sinking as low as $0.8975. The euro has weakened by
down more than 23 percent against the dollar since its launch in January 1999.
Economists pointed to imminent U.S. economic data, notably a key housing
report Wednesday, that are expected to show inflation pressures still lurk there
and might prompt the Federal Reserve to hike interest rates further to cool off
the economy. Most observers expect the Fed to raise its key rate a
half-percentage point at its next meeting.
"The U.S. economy is showing no
signs of losing steam," said Tony
Norfield, head of global currency
trading at ABN Amro. "A 50-basis
point rate hike by the Fed would make
the 25-basis-point increase from the
[European Central Bank] look fairly
puny," he said. A percentage point
equals 100 basis points.
Expectations of higher interest rates in the U.S. could attract investors to shift
money into dollar-denominated deposits, out of other currencies including the
euro.
Norfield also said some big-ticket corporate investments, such as Dutch insurer
ING's $6 billion friendly merger with ReliaStar, could have added to pressure on
the European single currency, as European companies buy dollars and sell
euros to carry out their transactions.
"It highlights that a great deal of investment is flowing out of the euro area and
into the U.S., the U.K. and elsewhere," he said.
Currency market trading was light, with traders in Japan on a three-day holiday
for "Golden Week" celebrations there. |
