Business | Economy
Dollar dives to record low in sharp selloff
The dollar dived to another record low against the euro on Wednesday as more bad news piled up on the state of the faltering US economy, dealers said.
- Agencies
- Published: 00:39 February 28, 2008
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- The dirham's fixed peg to the dollar means the UAE currency has tumbled against major currencies.
London: The dollar dived to another record low against the euro on Wednesday as more bad news piled up on the state of the faltering US economy, dealers said.
The euro hit a high of $1.5103 in afternoon European trade, breaching the $1.51 barrier for the first time since its creation in 1999.
This year, the dollar has tumbled against the euro and most other currencies amid growing fears that the US subprime housing market crisis and the global credit crunch could push the world's biggest economy into recession.
The dirham's fixed peg to the dollar means the UAE currency has also tumbled against major currencies.
In addition, favourable interest rate differentials and record high oil prices have encouraged currency investors to channel more funds into the euro.
The US government announced yesterday that sales of newly built homes in the United States fell steeper than expected to 2.8 per cent in January as the housing crisis deepened.
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Rate cut speculation
Meanwhile, US Federal Reserve chairman Ben Bernanke signalled that more US interest rate cuts could be on the way. Bern-anke told Congress that weak US economic growth may prompt the central bank to cut short-term interest rates further if needed.
Gold and oil prices also powered to record highs as investors piled in after the dollar slump. Speculative activity also helped boost base metals' prices, while soft commodities such as coffee, cocoa and sugar surged.
The latest dollar selloff was triggered by Fed vice chairman Donald Kohn, who said US economic weakness was a bigger concern than inflation.
A falling currency makes dollar-denominated commodities cheaper for holders of other currencies.
"Dollar weakness does generally mean higher commodity prices," said Aljoscha Haesen, investment manager at Forsyth Partners.
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