[NYTr] Booming Economy: Dollar hits new low against euro

[All the News That Doesn't Fit]

BBC News - Sep 13, 2007
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/6992570.stm


Dollar hits new low versus euro

The US dollar has fallen to new record lows against the euro as
investors fret about a world credit crunch.

In European trading, the greenback dropped as low as $1.3920 against
the euro, deepening Wednesday's losses.

The dollar has fallen in the past week, amid hopes that Federal Reserve
will cut interest rates in a bid to reassure markets over current
credit fears.

Analysts expect rates to fall by between a quarter and half a
percentage point when the Fed meets next week.

However, as the dollar has weakened, the euro has gained momentum after
recent comments from the European Central Bank (ECB) hinting at the
possibility of future interest rate rises.

Further gains?

The health of Europe's economy - underlined by strong growth and
inflation figures from France - could help push the euro through the
$1.40 barrier, some experts suggested.

"The catalyst sending the euro to its latest high against the dollar is
the growing expectation that the Fed could trim interest rates by up to
50 basis points at its 18 September policy meeting," said Global
Insight economist Howard Archer.

"The euro seems likely to remain well supported against the dollar in
the near term at least and could well break through $1.40 imminently."

At the heart of the dollar's decline have been problems in the US
housing market, caused by the Fed increasing interest rates in order to
slow accelerating inflation.

The increases have led to higher borrowing costs, triggering an
increase in the number of people defaulting on loans, especially in the
sub-prime mortgage market.

The sub-prime sector specialises in lending to people with poor or
non-existent credit histories.

This, in turn, has spread to global credit markets, as many of the
sub-prime mortgages were repackaged and sold on to European and UK
banks as investment assets.

© BBC MMVII