Sunday 18 January 2009

Unhappy dollar slides to all-time low against euro (Nov 2004)




Unhappy dollar slides to all-time low against euro

By David LitterickLast


Updated: 12:03AM GMT 19 Nov 2004

The dollar hit an all-time low against the euro yesterday, crashing through the $1.30 level as traders dismissed US Treasury Secretary John Snow's insistence on a strong dollar as increasingly hollow.
The euro closed at $1.3024, up nearly half a cent, as dealers continued to fret over how the US will attract the necessary capital inflows to fund its deteriorating trade balance and budget deficit.
The fear is that increasing numbers of overseas investors might lose confidence in the debt-ridden US economy and place their money elsewhere.
Sterling also rose against the dollar, climbing 0.29 cents to $1.8561, while the weak dollar saw the price of gold climb $4.90 to a fresh 16-year high of $444.70 per troy ounce.
Visting London yesterday, Mr Snow reaffirmed the Bush administration's dollar policy, saying: "a strong dollar is in both the national and international interest." He denied the US government secretly wanted a weaker currency to stimulate trade, claiming: "No one has ever devalued their way to prosperity. It can't be done."
He also rebutted speculation of possible central bank intervention to slow the decline of the dollar, saying it was for the market to decide its value. "The history of efforts to impose non-market solutions is at best unrewarding and chequered," he said.
Analysts attached little credibility to Mr Snow's comments, suggesting the administration had no real appetite for tackling the decline of the dollar. The US government is considered more likely to make strong economic growth a greater priority by supporting domestic demand, increasing the pressure on the US deficit and the dollar.
Jeremy Fand, a senior trader at WestLB in New York, said: "The administration is not going to stand in the way of dollar weakness. They are playing hardball with the Europeans."
European leaders have recently become more concerned at the rise in the euro, which makes European exports more expensive and could dampen the growth of an already sluggish economy. But they have so far expressed little desire to tackle the problem. A meeting of European finance ministers earlier in the week failed to arrive at any conclusion.
Central bankers and finance ministers from the world's 20 largest economies meet in Berlin this weekend but few in the foreign exchange market believe the G20 will take action to stem the dollar's decline.
The euro was launched at the beginning of 1999 at an exchange rate of $1.17 and had plunged below 83 cents by October of the following year. Having now breached the $1.30 level, the Federal Reserve's trade-weighted dollar index has fallen by 21pc since George Bush took office in January 2001.
Dealers said investors were turning from the greenback to Asian currencies in the anticipation that the Chinese government will come under pressure from the West to remove the peg linking the yuan to the dollar, leading to an appreciation of the currency.
The dollar is expected to fall further to $1.35 in the coming months, although dealers said hedge funds and other speculators were short of the dollar, leaving open the possibility of a short-term correction.

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