Dollar falls further to euro - extended

The 13-nation currency traded as high as $1.3784 overnight before settling back to $1.3767 by afternoon in Europe. That compared with the $1.3729 it bought in New York late Tuesday. The British pound hit a new 26-year high against the dollar, rising to $2.0322 - its highest level since June 1981 - from the $2.0267 it bought late Tuesday. “Currency markets have arguably been left focusing on just one point at the moment and that's concern over the possible collapse of the US subprime lending market,” said David Jones, chief market analyst at CMC Markets in London. “The result has been to put the dollar under some sustained pressure through the overnight session.” The subprime market refers to loans, such as mortgages, given to borrowers with spotty credit histories that tend to have higher interest rates. Subprime borrowers have missed a lot more payments on loans amid higher interest rates and a slowdown in the US economy.

A higher euro makes goods from the 13-nation currency zone more expensive for customers abroad and cuts into manufacturers' profits if they try to keep the US dollar price of products constant. However, European Central Bank executive board member Juergen Stark downplayed those concerns earlier this week. He said more than 50% of euro-zone countries' exports go to other euro-zone members, which makes them less vulnerable to currency fluctuations. On Tuesday night, he noted that “the improvements in economic fundamentals are being reflected in exchange rates.” Along with the rise in the pound, the stronger euro also makes visits to much of Europe more expensive for travelers from elsewhere and makes shopping trips to the US more appealing to Europeans. “I said to my friend 'Thank goodness we bought all our gifts before we got to Brussels last week,'” Susan Chorney, a middle school teacher from Greenwich, Connecticut, said in Berlin. “I know we'll slow down on buying things to take home. We're more thoughtful about spending small dollars right now.”

The euro started surging against the dollar on Tuesday, breaking through the $1.37 mark for the first time since it started trading in 1999, as concerns about the US economy were fueled by discouraging growth forecasts from key retailers and homebuilders. The dollar got no boost from a speech by US Federal Reserve Chairman Ben Bernanke that offered little insight into the central bank's next move and focused instead on how the bank makes its inflation-fighting decisions. The Fed has left its benchmark rate unchanged at 5.25% for a year following two years of steady increases. That contrasts with the ECB, which has raised rates steadily and is expected to do so again to 4.25% in September; and the Bank of England, which last week increased its benchmark rate to 5.75%, a six-year high. Higher interest rates, a weapon against inflation, can bolster a currency by giving better returns on fixed-income investments. (adn.com)

 
The dollar fell to a new record low against the euro Thursday, continuing its recent slide on worries over the US subprime mortgage market and the potential knock-on impact on the broader economy. The US currency has come under heavy pressure since Tuesday after Standard and Poor's and Moody's Investors Service, Wall Street's two largest rating agencies, signaled that problems in the subprime mortgage market aren't going away and will probably get worse as rising delinquencies weigh on US house prices.
“The driving force in the foreign exchange market remains concern that the subprime problem will trigger a broader credit-crunch, drag down the US economy and increase the likelihood that the Federal Reserve cuts the Fed funds rate by the end of the year,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

In New York trading, the euro stood at $1.3769, compared with $1.3756 late Wednesday, after earlier touching a fresh all-time high of $1.3797. The dollar was quoted at 122.43 yen, compared with 122.16 yen. The British pound rose to $2.0365, a new 26-year high, and last stood at $2.0283, compared with $2.0339. The dollar changed hands at 1.2033 Swiss francs, compared with 1.2045 francs. (marketwatch.com)