[NYTr] Euro soars to record high against dollar

[All the News That Doesn't Fit]

AFP - Sep 24, 2007
http://www.afp.com/english/news/stories/070924094956.n1v4g6s6.html

Euro soars to record high against dollar

LONDON (AFP) - The euro soared to a record 1.4130 dollars in early
trading as the market remains convinced that the US Federal Reserve
will be forced to make another cut in interest rates, traders said
Monday.

The Czech koruna also hit an historic high 19.49 dollars.

The euro has gone from record to record against the dollar over the
past few weeks as investors continue to fret over the state of the US
economy.

At 0800 GMT the euro was changing hands at 1.4120 dollars, after
climbing to its new record. The euro was traded at 1.4090 dollars in
New York late on Friday.

"The dollar has been undermined ... by speculation that the FOMC will
ease its monetary stance further," said Paul Chertkow, head of global
currency research The Bank of Tokyo-Mitsubishi in London.

The Federal Open Market Committee last week made a robust 50 basis
points cut in US interest rates in a bid to galvanise the country's
economy, which has been battered by problems in the high-risk home
loan, or "subprime" market.

However the cut in interest rates to 4.75 had made investments in the
dollar less attractive than other currencies.

"We forecast a sustained broad-based dollar depreciation over the
balance of 2007 and into 2008, including further losses against the
euro," said Gabriel de Kock of US bank Citi. 

Given the prevailing mood, there is every chance that the euro could
reach 1.44 dollars over the next two months, said a foreign currency
trader from a European bank who did not want to be named.

The weakening dollar has meanwhile created dilemmas on both sides of
the Atlantic. According to economists, exporters are under pressure in
Europe, inflationary pressures are likely to rise in the United States
and funding the US current account deficit will become more difficult.

In Europe, the strong euro has a number of benefits, most notably it
makes oil imports cheaper because crude is priced in dollars.

It also reduces the price of other imports from outside the European
Union: an advantage for consumers, as well as certain industries that
rely on imports.

The strong euro also allows large European groups to buy assets
overseas at lower prices.

However, European exporters are starting to feel the pinch because the
strong euro makes their exports more expensive for overseas consumers
whose currencies follow the fluctuations of the dollar.

The eurozone's trade account, a measure of its trade relations with the
rest of the world, dropped to a surplus of 4.6 billion euros in July
from 7.6 billion euros.

On the other side of the Atlantic, the weakness of the dollar, which
for the first time for 31 years is at parity with the Canadian dollar,
is an advantage for exporters, but makes imports more expensive.

This can help reduce the country's trade deficit, but also accelerates
inflationary pressures because imports become more expensive.

It also makes life more risky for buyers of American treasury bonds,
making it difficult to finance US public debt.

The European single currency -- the common currency of the 13-member
eurozone -- was created on January 1, 1999.