Tuesday, December 30, 2003

Dollar sinks as euro hits new high

British pound reaches 11-year peak in trading

By Anusha Shrivastava
The Associated Press

NEW YORK - The dollar fell to new all-time low against the euro and an 11-year low against the British pound Monday, as weeks of downward dollar sentiment persisted in thin holiday trading.

The euro rose briefly to $1.2511 in European trading, breaking a previous record of $1.2473 from last week, before slipping back under the $1.25 mark. In late New York trading, the euro was quoted at $1.2489, up from $1.2429 late Friday.

The British pound reached $1.7770, an 11-year high, before easing off later in the day to $1.7730 in late New York trading, down from $1.7702 late Friday. The previous high, reached Sept. 29, 1992, was $1.7895.

"The dollar's decline is just the continuation of an ongoing trend," said Michael Rosenberg, head of foreign exchange strategy at Deutsche Bank in New York.

Even though there was not much news to distinguish Monday's session from earlier sessions, some analysts were surprised that the dollar did not show any bounce at the end of the year as they had expected.

"It suggests how endemically weak the dollar is," said David Gilmore, partner at Essex, Conn.-based Foreign Exchange Analytics.

The euro, introduced Jan. 1, 1999, has risen 19 percent against the dollar since the beginning of 2003, with the pace up sharply since the end of November.

While in recent weeks some had tagged the euro's breakthrough of the $1.25 mark a significant breach, traders Monday played down the significance, particularly in light holiday trading.

"Officials and markets are more concerned about the pace of the decline rather than the level of decline," Gilmore said. "The decline is still orderly, and the dollar's current rate is sustainable."

Gilmore said the decline would be disorderly and would cause concern if the stock and bond markets were affected by it. "So far, that's not happened," he said.

The dollar's slump has been fueled by concerns about the U.S. trade deficit and was magnified around Christmas and New Year's by thin holiday trading volume that exaggerates exchange-rate swings.

Gilmore said he expected a sustained bounce to come "when the Bush administration makes it clear that the dollar has weakened enough - and, conversely - when the ECB (European Central Bank) and the European Union say the euro has strengthened enough."

So far, officials on both sides of the Atlantic have indicated that they are willing to let the market set currency rates.

And a weak dollar can aid the U.S. economy by making U.S. goods more competitive on price.

"A lower dollar is useful in enabling U.S. companies to become more export competitive," said Robert Hormats, vice chairman, international, at Goldman Sachs in New York.

Still, Gilmore said he expects monetary authorities to begin making verbal protests about the stability of the dollar at the G-7 meeting in February.

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