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Dollar falls to record low against euro { March 2008 } Original Source Link: (May no longer be active)
http://www.bloomberg.com/apps/news?pid=20601087&sid=attAG_pdH4m0&refer=homehttp://www.bloomberg.com/apps/news?pid=20601087&sid=attAG_pdH4m0&refer=home
Dollar Falls to Record Against Euro as EU Inflation Quickens
By Ye Xie and Lukanyo Mnyanda
April 16 (Bloomberg) -- The dollar fell to a record low against the euro as European inflation accelerated and U.S. housing starts tumbled, reducing chances the European Central Bank will follow the Federal Reserve in cutting interest rates.
The U.S. currency had its biggest decline versus the euro in three weeks, dropping as low as $1.5969. The Canadian and Australian dollars and Norwegian krone increased after crude oil rose to a record of $114.53 a barrel. The euro touched 80.76 pence against the pound, the highest since the European currency's 1999 debut.
``We are in an uncharted territory,'' said Robert Lynch, a senior currency strategist in New York at HSBC Bank USA NA. ``The general upward trend for the euro against the dollar remains.''
The U.S. currency weakened 1 percent to $1.5941 against the euro at 9:26 a.m. in New York, from $1.5790 yesterday. The dollar decreased 0.6 percent to 101.25 yen, from 101.83. The euro rose 0.4 percent to 161.43 yen, from 160.78.
The dollar has dropped 15 percent against the euro since September as the Fed cut the target lending rate 3 percentage points to 2.25 percent to protect the U.S. economy from the collapse of the subprime-mortgage market.
The yuan was little changed at 6.9962 per dollar after a report showed China's economy expanded 10.6 percent in the first quarter, underlining the strength of the nation's expansion as a slump in the U.S. drags down global growth.
The euro rose 0.3 percent against the pound to 80.71 pence after touching the all-time high on the European inflation report. The Bank of England cut its target lending rate by a quarter-percentage point to 5 percent on April 10.
Oil and Dollar
Crude oil and the euro versus the dollar have moved in lockstep in the past year. The correlation coefficient between the two was 0.957. A reading of 1 indicates they always move in the same direction.
``There has been a clear and positive correlation between oil and the euro against the dollar over the last couple of years,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago. ``People have to recycle out of the U.S. dollar when oil prices go up.''
Implied volatility on options for the six most active currencies against the dollar rose to 11.68 percent today, from 11.58 yesterday, according to an index compiled by JPMorgan Chase & Co. The gauge touched a decade high of 14.48 on March 17, a level at which the Group of Seven nations bought the dollar to check its decline in a coordinated move in 1995.
Fed Rate Outlook
Futures on the Chicago Board of Trade showed a 28 percent chance that policy makers will reduce the fed funds target by a half-percentage point to 1.75 percent on April 30, compared with a 42 percent likelihood a week ago. The rest of the odds were for a reduction of a quarter-percentage point.
The European inflation rate accelerated to 3.6 percent last month, the highest in almost 16 years, the European Union's statistics office in Luxembourg said today. The March figure is up from 3.3 percent in February and exceeds an estimate of 3.5 percent published on March 31.
European Central Bank executive board member Juergen Stark said yesterday that interest rates at 4 percent may not be high enough to contain inflation.
Work began on 947,000 U.S. homes at an annual rate, down 11.9 percent from February and the fewest since March 1991, the Commerce Department said today in Washington.
The dollar pared its loss against the euro after a report showed industrial production in the U.S. unexpectedly rose the most since November last month, helped by an increase at utilities and demand for business equipment.
Production at factories, mines and utilities increased 0.3 percent last month, following a revised 0.7 percent drop in February that was larger than previously reported, the Fed said today in Washington. Capacity utilization, which measures the proportion of plants in use, rose to 80.5 percent.
Last Updated: April 16, 2008 09:28 EDT
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