Euro Hits Record High Against Dollar
Wednesday December 17, 1:53 pm ET
By Manuela Badawy
NEW YORK (Reuters) - The dollar slid to a record low against the euro on Wednesday in thin pre-holiday trade as low U.S. interest rates and record budget and current account deficits continued to weigh on the currency.
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The euro broke through the psychologically important $1.2400(EUR=) level, reaching a record $1.2418 in midday New York trading, according to Reuters data. This is the 12th record high of the past 14 trading sessions for the euro, which has surged almost 19 percent this year.
With interest rates in the United States seemingly stuck at a 45-year low of 1 percent for the time being and record current account deficits pulling demand away from the greenback, the negative economic fundamentals lined up against the dollar are firmly in place.
"This stark combination of structural deficiencies in the U.S. economy, namely the twin deficits and the low interest rates, combined with the Federal Reserve's insistence that it is going to maintain interest rates at these very low levels, continues to weigh on the U.S. dollar," said Ashraf Laidi, chief currency analyst at MG Financial Group in New York.
As the end of the year approaches, the market tends to become illiquid, so any moves could jolt the currency.
The dollar index slipped to a seven-year low on Wednesday as market sentiment on the currency remained bearish. The index (=USD), a measure of the dollar against a basket of currencies, fell to a low of 87.81.
The dollar hit a seven-year low against the Swiss franc of 1.2514 francs(CHF=), a loss of 0.60 percent.
Sterling climbed for a second straight day to an 11-year high of $1.7667(GBP=) before drifting back to $1.7647.
THE ECB TALKS
European Central Bank Chief Economist Otmar Issing was quoted on Wednesday as saying the euro's exchange rate against the dollar was back to normal, having reached the same level as around the time of its introduction of $1.17 in 1999.
Analysts said one factor contributing to the euro's rise was a report from Market News International citing unidentified European Central Bank sources saying the bank would not intervene unless the euro rose above $1.35.
"Things were relatively quiet this morning until this story came out suggesting from ECB sources that they did not see the need for any intervention unless the euro got to $1.35, and of course, whenever you put a number out there, the markets get very excited," said Robert Sinche, global head of currency strategy at Citibank in New York.
A spokesman for the ECB declined to comment on the report, following the central bank's standard policy not to comment on currency markets or on reports about possible market action.
There is some concern among European companies that the strength of the euro could hinder any budding economic recovery.
The co-chief executive of Airbus parent EADS said the company would have to take radical new cost-cutting measures and put additional pressure on suppliers if the euro rose to the $1.30-$1.35 level for a lengthy period of time.
THE YEN AND NOKIE
Against the yen, the dollar fell to a fresh one-week low at 107.27(JPY=) before moving up to 107.40 yen.
Market players expect Japanese authorities to continue to intervene in the market, though some see the possibility of the yen eventually rising to the 105-yen or 100-yen level.
Government sources said on Wednesday that Japan was set to bolster its borrowing limit for its foreign exchange account -- which it uses for yen-selling intervention -- from 79 trillion to 100 trillion yen for the fiscal year to next March.
The Norwegian central bank made a surprise rate cut of 25 basis points to a record low 2.25 percent, sending the Norwegian crown to a six-week low against the euro of 8.2668 crowns(EURNOK=), and dropping it to 6.7061 crowns (NOK=) against the dollar. |
