[NYTr] US dollar tumbles to a new euro low

[All the News That Doesn't Fit]

BBC - Oct 22, 2007
http://news.bbc.co.uk/2/hi/business/7055863.stm


US dollar touches a new euro low

The US dollar tumbled to a new euro low in Asian trade as concerns over
the state of the US economy deepened.

The euro traded as high as $1.4348, breaking its last record set on
Friday when one euro bought $1.4319.

The sell-off was triggered on Friday by a profit warning from building
equipment giant Caterpillar, prompting concerns over the slowing US
economy.

But the dollar bounced back to trade at $1.4146 against the euro bloc's
currency in afternoon trade in London.

The greenback also slipped to a six-week low againt the Japanese yen on
Monday, touching 113.25 yen at one point, but gained against the
British pound to trade at $2.0315 after initial falls.

The dollar could weaken further if the US Federal Reserve cuts interest
rates again at its meeting at the end of the month, making the US
currency less attractive for income seekers.

Meanwhile, the strong euro is a threat to exporters, such as Airbus
owner EADS, and to the wider region's economy, which has just started
to recover after years in the doldrums.

Suffering continues

The latest falls come after a joint International Monetary Fund and
World Bank meeting in Washington last Friday, which ended without any
reference to the weakness of the US dollar or the strength of the
13-member Euro bloc's currency.

Analysts say this apparent indifference suggests central bankers have
no intention of interfering in this area of the currency market, a cue
for investors to carry on selling dollars.

They believe that the US Federal Reserve will have to cut interest
rates further at this month's meeting from their current level of 4.75%
to lift the economy, which is showing increasing signs of suffering
from a slump in house prices and higher credit costs.

At its September meeting, policymakers cut rates from 5.25% to 4.75%.

Yet, at the same time, traders have become more averse to risky
investments and have started selling global equities that they bought
with money borrowed from countries such as Japan, where the interest
rate is 0.5%.

As the use of this strategy comes to an end, currencies that generate a
higher income than the Japanese yen, including the euro, dollar and
sterling, will all feel the pressure.