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Dollar reaches fresh euro low
The euro reached an all-time high against the US dollar in European trading yesterday before split decisions on interest rates by the European Central Bank and the Bank of England.
- AP
- Published: 01:00 April 11, 2008
Frankfurt: The euro reached an all-time high against the US dollar in European trading yesterday before split decisions on interest rates by the European Central Bank and the Bank of England.
The 15-nation euro rose to $1.5912 in late-morning European trading before the ECB agreed to keep its key interest rate unchanged at four per cent.
It later fell to $1.5796 before gaining slightly to $1.58, below the $1.5828 in New York late on Wednesday. The previous record of $1.5904 was set on March 17.
The euro's post-rate decision slide came even as the US Commerce Department reported that the trade deficit rose by 5.7 per cent in February to $62.3 billion, its highest since November.
Analysts had forecast that the deficit would decline, believing that a severe economic slowdown in the US would cut demand for imports.
The British pound rose as high as $1.9842 after the Bank of England cut its benchmark interest rate to five per cent but later fell back to $1.9790, above the $1.9751 it bought in New York on Wednesday night.
James Hughes, an analyst with CMC Markets, said the Bank of England's rate cut had already been priced in by markets, as have predictions that the ECB will hold steady.
He said that markets will be studying remarks by ECB President Jean-Claude Trichet for "any clues as to just how long Trichet feels he can continue to leave rates unchanged in a struggling global economy."
Trichet, in comments to reporters, gave no sign of any rate cut anytime soon, telling them there was "certainly no room for complacency" because of inflation worries in the euro zone.
The bloc of 317 million people accounts for some 15 per cent of the world's global domestic product.
Contrast
Trichet's stance has contrasted with that of the US Federal Reserve, which has cut rates repeatedly as it moves to stem a slowdown.
Worries about a possible US recession have increased the likelihood that the Federal Reserve may cut interest rates even further as the ECB - which is focusing on fighting record levels of inflation - leaves the cost of borrowing unchanged.
Lower interest rates can weigh on a nation's currency as traders transfer funds to countries where they can earn higher returns.
The dollar declined on Wednesday to 100.82 Jap-anese yen from 102.04 yen.
"There is still uncertainty regarding [US] economic activity and the Fed is likely to cut rates by 50 basis points at the end of the month, and today we have the decoupling of the monetary policy between the Fed and the BoE on the one hand, and the ECB on the other hand," said Carole Laulhere, currency strategist at Societe Generale.
"We hope he [Trichet] will stay quite hawkish. We are long euro/dollars with a target of $1.61," she added.
The euro has gained nine per cent against the greenback so far this year.
A fall in equity markets also helped the low-yielding Japanese currency as well as the safe-haven Swiss franc.
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