Dollar declines to new low of $1.50 against euro
The dollar weakened below $1.50 per euro for the first time on speculation Federal Reserve Chairman Ben S. Bernanke will indicate the US central bank is ready to cut interest rates from a three-year low.
The dollar also dropped against 15 of the 16 most-active currencies after German business confidence unexpectedly strengthened for a second month in February, prompting traders to reduce bets on a cut in interest rates by the European Central Bank. The currency fell to an all-time low against the Swiss franc and to a 23-year low versus the New Zealand dollar.
"We're in a new regime for the dollar," said Bilal Hafeez, London-based global head of currency strategy at Deutsche Bank AG, the world's biggest foreign-exchange trader. "The proximate cause has been European data, which has indicated that Europe hasn't suffered on the growth side as the US has."
The dollar fell to $1.5088 per euro, the lowest since the European single currency's debut in 1999, before trading at $1.5062 as of 10:52 am in London, from $1.4974 on Wednesday in New York. It also declined to 106.40 yen from 107.28 yen and to 1.0694 Swiss franc from 1.0756. The euro was at 160.15 yen from 160.67, after reaching 161.39. The dollar may fall to $1.55 per euro by the end of the first quarter, Hafeez predicted.
The dollar dropped to a 23-year low of 82.13 US cents against the New Zealand dollar on speculation the interest-rate differential will widen in favor of assets outside of the US. The US currency was at 93.85 cents per Australian dollar, from 93.38. New Zealand's key interest rate is 5.25 percentage points higher than the Fed's 3 percent rate. Australia's is 4 percentage points more.
A Fed trade-weighted index of the dollar against major currencies has fallen more than 11 percent in the past year. The US Dollar Index traded on ICE Futures in York, which tracks the currency against six major counterparts, dropped to 74.23 yesterday, the lowest since the gauge started in 1973.
The currency also dropped to an all-time low of $1.5088 against the synthetic euro, a theoretical value that estimates where the currency would have traded before 1999.
The US currency has declined almost 14 percent versus the euro in the past year. It has weakened against all but one of the 16 most-active currencies as subprime-mortgage losses, the worst housing slump in 25 years and soaring credit costs spurred the Fed to cut interest rates five times in four months.
By contrast, the ECB has held its main lending rate at a six-year high of 4 percent since June to counter inflation pressures from surging food and oil prices.
Traders increased wagers on rate cuts after ECB President Jean-Claude Trichet on Feb 7 dropped a threat to raise borrowing costs and said uncertainty about economic growth is "unusually high".
Agencies
(China Daily 02/28/2008 page17)
