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FinalCall.com News
Business & Money
The fall of the U.S. dollar
By Matt Moore
AP Business Writer
Updated Oct 9, 2007 - 9:45:00 AM
Euro hits another high, breaking through $1.40 for first time since its 1999 debut
FRANKFURT, Germany (AP) - The dollar fell to a new low against the euro on Sept. 20 as the European currency breached $1.40 for the first time since its debut in 1999. The dollar also sank to one-to-one parity with the Canadian dollar, a level not seen in more than 30 years.
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 on the night of Sept. 19 of $1.3987, and more than the $1.3964 it bought in late New York trading.
The dollar also fell against other currencies, reaching parity with the Canadian dollar for the first time since November 1976. One U.S. dollar now buys one Canadian dollar.
David Jones, chief market analyst at CMC Markets in London, said the euro’s rise is not likely to abate in the coming days, given fears about another interest rate increase in the United States.
In Washington, Federal Reserve Chairman Ben Bernanke told Congress that the credit crisis had created “significant market stress” and offered fresh assurances that regulators would take steps to curb fallout related to the mortgage mess.
Mr. Bernanke made the statement in testimony, prepared for a hearing Sept. 20 before the House Financial Services Committee. In his prepared testimony, Mr. Bernanke did not offer new clues about the Fed’s next move on interest rates.
“I am sure we’re going to see buyers moving in for the next target,” Mr. Jones said, adding that he believes the euro will rise to US$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 “US$1.45 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,” he 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 in early September, 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 in October, 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 from automobiles to consumer appliances more expensive for American buyers.
On Sept. 20, 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 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: It dipped against the British pound to $2.0082 compared with $2.0025 late Sept. 19 after U.K. retail sales in August rose by 0.6 percent from July, and slipped against the Japanese currency to 114.96 yen from 116.09 on Sept. 19.
