Thursday, September 20, 2007
FRANKFURT, Germany, Sep. 20, 2007 (AP Online delivered by Newstex) -- The dollar fell its lowest-ever level against the euro on Thursday as the european currency traded above $1.40 for the first time since it was introduced in 1999. The U.S. currency also moved closer to parity with the Canadian dollar.
Breaking the $1.40 barrier for the euro has long been seen as a key turning point in solidifying the euro's position in global currency markets, providing more impetus for it to be the reserve currency of choice -- a position long held by the now-weakening dollar, which has been battered by a recent half-percent cut in U.S. interest rates.
The 13-nation euro bought as much as $1.4064 in morning trading in Europe before falling back slightly to $1.4040, above its previous high Wednesday night of $1.3987, and more than the $1.3964 it bought in late New York trading.
Meanwhile the Canadian dollar moved decisively above 99 U.S. cents, flirting with one-to-one parity with the American dollar for the first time since November 1976. The currency opened North American trading at 99.42 U.S. cents Thursday and soon rose to 99.96 U.S. cents.
David Jones, chief market analyst at CMC Markets in London, said the euro's rise is not likely to abate in the coming days, particularly later Thursday when traders wait to hear what U.S. Federal Reserve Chairman Ben Bernanke and U.S. Treasury Secretary Henry Paulson say about the U.S. mortgage market in testimony before the U.S. Congress.
Bernanke could use the forum as a way to fine-tune the U.S. central bank's economic outlook, after a larger-than-expected half-point cut in the benchmark interest rate earlier this week.
'I am sure we're going to see buyers moving in for the next target,' Jones said, adding that he believes the euro will rise to $1.42 very soon.
'If not this week, it could be next week,' he said. 'People are using any weakness as a buying opportunity for euros.'
Howard Archer, chief U.K. and European economist at Global Insight, said that seeing the $1.45 level is a 'serious possibility before the end of the year' because of the specter of more U.S. interest rate cuts.
'The Fed seems highly likely to cut U.S rates further, it now looks probable that the next move in U.K. interest rates will be down, while the ECB currently still retains a tightening bias,' Archer said.
The euro's latest surge has come after the Fed lowered its key interest rate to 4.75 percent from 5.25 percent as it tries to keep the U.S. economy on track despite market turbulence from the subprime lending crisis. Most analysts had expected a quarter-point cut.
Lower interest rates, while used to jump-start the economy, can also weaken a currency by giving investors less return on investments denominated in the currency.
The European Central Bank kept its key rate unchanged at 4 percent earlier this month, backing off a planned increase in light of the subprime crisis and market volatility. Analysts are mixed on whether the bank will lift the rate in October.
The Bank of England meets next month, too, and is expected to keep its rate unchanged at 5.75 percent.
The rising euro has yet to cause great consternation among most of the 13 nations that use the common currency, save for France, which has criticized its increase. As the euro rises it could dampen exports, particularly to the United States, making European-made products such as cars and consumer appliances more expensive for American buyers.
On Thursday, Germany's finance ministry said the euro's strength meant that export growth in Europe's biggest economy had lost some of its vigor.
'The dynamism of exports is noticeably weaker than last year,' the German ministry said in its September monthly bulletin, citing the euro's appreciation against the dollar as a reason.
The dollar also fell against other currencies, dipping against the British pound to $2.0072 compared with $2.0025 late Wednesday, after U.K. retail sales in August rose by 0.6 percent from July.
The dollar slipped against the Japanese currency to 115.05 yen from 116.09 late Wednesday.
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Associated Press writer Melissa Eddy in Berlin contributed to this report.
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