Euro Reaches All-Time High Against Dollar

Euro Reaches All-Time High Against Dollar


By CARTER DOUGHERTY

Published: September 20, 2007

FRANKFURT, Sept. 20 — The world dumped
the dollar today, pushing it to an all-time low of $1.40 against the
euro and to parity with the Canadian dollar for the first time in three
decades as currency traders around the world digested the full
implications of the Federal Reserve’s new course for interest rates. Skip to next paragraph


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The frenzied selling began
early in the day in Europe, never let up, and reached across the
Atlantic as traders concluded that the lower borrowing costs the Fed
introduced on Tuesday would dampen the appeal of dollar-denominated
assets like stocks, bonds and real estate just as other central banks
are raising rates to create the opposite effect.Layered atop a
weakening American economy that is menaced as well by the prospect of a
retreat by consumers who have driven growth for years, the dollar
radiated instability as its traditional role as a refuge in times of
crisis, one evident as recently as early August, appeared all but
forgotten.“It’s pretty ugly right now for the dollar,” said Jim McCormick, the London-based chief of currency strategy for Lehman Brothers International. “But the markets are having a very rational response to what the Fed did on Tuesday.”The
dollar dipped as low as $1.4094 in mid-day trading in New York, having
cracked the $1.40 level before trading began in the United States. The
dollar also lost ground against the British pound, with sterling now
worth roughly $2, and it sank against the Japanese yen.Against
the Canadian dollar, currency of the largest United States trading
partner, the dollar tumbled to one-to-one, a level not seen since the
1976, the early phase of a currency crisis that would eventually send
shock waves through the global economy.“It seems light years
from five years ago when the dollar was threatening to drop below 60
cents,” said Douglas Porter, an economist with BMO Nesbitt Burns, the
brokerage unit of the Bank of Montreal. “It will affect the psychology here in a big way.”Still,
currency analysts are dodging the label “dollar crisis” for the moment,
preferring to see today’s events as the logical outcome of the Fed’s
surprise decision to lower its benchmark rate by a half percentage
point, to 4.75 percent — a step intended to quarantine the wider
economy from the effects of a housing market collapse and soothe
jittery credit markets.But almost daily, the American economy
seems to be providing fresh evidence that the real estate slump might
jar consumers into spending less — a fear evidently shared by policy
makers at the Fed. That has given a fresh impetus to traders bearish on
the dollar.“I’m not sure you can argue that it is just interest
rate differentials driving the dollar’s weakness,” said Mitul Kotecha,
global head of foreign exchange research at Calyon in London. “The Fed
is validating this course, but underlying that is concerns about
economic growth.”Ian Austen contributed reporting from Ottawa.