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Feb 27, 2008 4:14 pm US/Eastern
Euro Soars To New Record High
BERLIN (AP) ―
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The Euro rose to a new record high of $1.5057 on Feb. 27, 2008.
AP
The dollar sank Wednesday to its lowest level ever against the euro
after markets took comments from the Federal Reserve chairman as a sign
that yet more U.S. rate cuts are on the way.
The 15-nation euro topped $1.50 for the first time since its 1999
introduction in Asian trading, then surged after Fed Chairman Ben
Bernanke told the House Financial Services Committee that "the economic
situation has become distinctly less favorable" since last summer.
That added to sentiment that the Fed is likely to add to recent rate
cuts that already have left U.S. interest rates below those in the euro
zone.
The euro surged as high as $1.5143 after Bernanke's testimony — well
above the $1.4967 it bought in New York late Tuesday. It settled back
to $1.5120 in late New York trading Wednesday.
Lower interest rates can jump-start a nation's economy, but can
weigh on its currency as traders transfer funds to countries where they
can earn higher returns. Worries about the U.S. economy have helped
drive down the dollar for months.
Since Bernanke's last similar assessment, the U.S. housing slump has
worsened, credit problems have intensified and the job market has
deteriorated. Bernanke said those factors combined to make people and
businesses alike more cautious toward spending and investment — further
weakening the economy.
Despite the roaring euro, growth is still on track in Europe and
markets are optimistic that, should the U.S. go into recession, the
continent would be able to weather the storm.
The European Central Bank has left interest rates unchanged since
last summer, is expected to keep them at 4 percent when it meets next
week.
"The U.S. economy is still in a weak period and we cannot estimate
how long that is going to go on," Christoph Schmidt, an analyst with
N.M. Fleischhacker Trading Bank in Frankfurt, told AP Television News.
"The market is counting on the Fed lowering the interest rates even
further and on the fact that the ECB is going to keep them where they
are," Schmidt said. He added that the divergent interest rates were
"good for the euro and bad for the dollar."
The British pound soared as high as $1.9971 before falling back to
$1.9842 late in New York — below its level of $1.9862 late Tuesday. The
dollar fell to 106.45 Japanese yen from 107.26 yen.
Neither the surging euro nor the British pound's latest flirt with
the $2 level will be kind to Americans visiting Europe. They will have
to pay more for hotel rooms in Rome, entrance fees at the Louvre and
chocolates in Belgium.
"Oh, it's affecting what we do," Idaho resident Ray Tussing said in
Paris. "We're avoiding major restaurants because they are quite pricey
to have a full dinner. And so what we're doing is that we're eating off
of stands, we're eating pizza — we're eating smaller simpler things in
order to try and keep our costs down."
The dollar's swoon makes shopping trips to the U.S. even more
appealing for Europeans. It is less good news for their companies,
since the high euro makes their goods pricier for overseas customers
and can cut into their profits if they try to keep the dollar price of
products constant. But the weaker dollar could benefit U.S. companies,
making exports more competitive abroad.
Howard Archer, the chief British and European economist for Global
Insight, said that weaker U.S. growth prospects — coupled with the
country's current account deficit — will "exert a significant downward
influence" on the dollar in the long term.
"In addition, there is the very real possibility that several
countries could switch a proportion of their foreign currency reserves
out of U.S. dollars over time," he said.
The euro was buoyed by a string of disappointing economic reports
out of the U.S. on Tuesday, including the New York-based Conference
Board's Consumer Confidence Index, which fell to its lowest level since
February 2003.
Meanwhile, the U.S. Labor Department reported that wholesale
inflation rose by 1 percent in January — more than analysts estimated —
on rising oil and food costs. Finally, Standard & Poor's reported
that U.S. home prices fell 8.9 percent in the last three months of 2007
from a year earlier, its sharpest drop ever.
In other late New York trading, the dollar fell to 1.0622 Swiss
francs from 1.0759 Swiss francs, but edged up to 98.08 Canadian cents
from 98 Canadian cents late Tuesday.
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