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Dollar nears record low against euro { March 2007 } Original Source Link: (May no longer be active)
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AP
Dollar Trades Near Record Low Vs. Euro
Monday April 16, 5:11 pm ET
By Jackie Farwell, AP Business Writer
Dollar Loses Ground to Euro and Pound As Tourist Season Approaches
NEW YORK (AP) -- The dollar hovered near a record low Monday against the euro after the 13-nation currency climbed to within 1 cent of its all-time high, while the pound backed down from a 14-year record.
Currency traders now turn their eyes in the coming days to economic data that could further the pound's rally. Key inflation figures from the U.S. and Britain due out Tuesday will be followed Wednesday by the minutes from the Bank of England's last meeting on interest rates.
The data could increase the risk of a British rate hike while worries about sluggish economic growth in the U.S. persist.
Higher interest rates, used to combat inflation, can bolster a currency by making certain types of investments more attractive.
Movement against the dollar could drive up the price of exports and tighten the pinch for travelers to Europe just as the tourist season approaches.
Supported by crackling economic growth, falling jobless figures and interest rates much lower than those in Britain and the United States, the euro bought $1.3549 in late New York trading after climbing to $1.3576 -- its highest point since January 2005 and near its December 2004 record of $1.3667.
It traded at $1.3539 late Friday.
Kristian Siggaard-Jensen, a foreign exchange strategist with Saxo Bank in Copenhagen, Denmark, said markets had factored in the increases, noting the steady guidance by the European Central Bank and the Bank of England.
"People have been expecting this sort of volatility ... to pick up for some time," he said.
The British pound rose early in the day to $1.9938, its highest point since September 1992, on unexpectedly higher prices for manufactured goods and news that the sizzling housing market was going strong.
The pound last reached the $2 mark 14 years ago when the United Kingdom was kicked out of the European Exchange Rate Mechanism.
Analysts said they expected the currency to cross the $2 mark this week. It later fell back to $1.9900, compared with $1.9870 Friday in New York.
The dollar rose to 119.79 Japanese yen from 119.12 yen late Friday after officials from the Group of Seven wealthiest nations opted not to press Japan to raise its interest rates to buoy its currency at a weekend meeting.
"The message from G-7 is that the world's a happy place and everybody go out and invest," David Gilmore, a partner at Foreign Exchange Analytics in Essex, Conn., said of last weekend's meeting of G-7 officials in Washington.
The euro has charged higher against the dollar in recent months as the region's economy improves and jobless figures decline. The high level has drawn some criticism in the past because leads to higher export prices. Germany, Europe's largest economy, is highly dependent on exports.
But unlike previous highs, the clamor of politicians has been decidedly muted given the strong export growth, the strength of European economies and the belief that a higher euro won't hurt sales abroad right now.
"The tenor of European rhetoric at the G-7 was surprising, and on the face of it, positive, as it's always good to see a lack of equivocation on the part of central bankers," Siggaard-Jensen said.
"There was a clear sense that while a strong euro is bad for exports, its a great inflation-fighter for the euro zone," he said. "That's especially true in an environment of high oil prices, which are dollar-denominated. All in all, surprising and refreshing rhetoric from the Europeans."
Italian Prime Minister Romano Prodi told reporters in Tokyo early Monday that the euro had risen too high, but tempered that by saying the growth had helped Italian and euro-zone business and industrial growth.
"We have already reached extremely elevated levels," Prodi told the Italian news agency ANSA. He added that the euro's strength had jolted big industry out of a period of laziness and promoted a decisive "increase in productivity."
The ECB held its benchmark rate steady at 3.75 percent last week but set the scene for an increase to 4 percent in June. That would be aimed at countering threats of inflation in the euro zone, a bloc of 317 million people that accounts for more than 15 percent of the world's global domestic product.
"The fundamentals are in line to go higher and the politicians seem to be welcoming that," Siggaard-Jensen said. "The investors are more confident, too, and realize 'we can take euro/dollar above the all-time highs without getting too much (government) intervention."
Worries about the U.S. trade and budget deficits were a key factor in the euro's surge to its all-time high in 2004, but those worries were submerged over the past two years by the Federal Reserve's campaign of interest rate increases. The Fed has left rates unchanged over recent months, with markets watching U.S. data closely for pointers as to the Fed's course.
In other trading, the dollar bought 1.2134 Swiss francs, slipping from 1.2139 late Friday, and 1.1312 Canadian dollars, down from 1.1369.
AP Business Writer Matt Moore in Frankfurt, Germany, contributed to this report.
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