Dollar Hits All-Time Low Against Euro

By MATT SURMAN Associated Press Writer

The Associated Press - Friday, November 05, 2004

The U.S. dollar hit an all-time low against the euro Friday, shrugging off positive U.S. employment data amid worries about oil prices and concern over the U.S. budget deficit.

The dollar had rallied a bit earlier in the day, with the euro briefly dropping below $1.28 after the U.S. Labor Department reported that employers aggressively hired new workers in October, adding 337,000 people to their payrolls.

But the U.S. currency resumed its downward trend, and later in the day the euro reached a new high of $1.2950. It had reached its previous peak of $1.2927 in February. The shared currency of 12 European nations has been trading since 1999.

Oil prices, which remain relatively high despite an 11 percent decline in the past 10 days, have raised doubts about the strength of the U.S. economy, adding new concerns on top of high U.S. trade and budget deficits, factors that have weighed on the dollar for months.

The U.S. current account deficit, the broadest measure of foreign trade, has risen to nearly $600 billion, or around 6 percent of gross domestic product, as Americans buy more from overseas than U.S. businesses can export.

Economists say sentiment has turned so strongly against the dollar that positive news about the U.S. economy has little impact on its slide.

Dorothea Huttanus, an economist at DZ Bank in Frankfurt cited "global skepticism about the U.S. economy because of oil prices" and persistent concern over the U.S. deficits. She noted that although the labor market figures were "outstanding," they only boosted the dollar for about an hour.

Commerzbank economist Christoph Balz said he expected to see the euro hit $1.31 in the next couple of months, but to settle in the long-term.

"The U.S. economy is stronger than people think, which will lead to higher interest rates and make the dollar more attractive," he said.

In addition, many analysts believe the administration of U.S. president George W. Bush, re-elected Tuesday, has deliberately sought a lower dollar in order to help U.S. exports.

The stronger euro makes European exporters' goods more expensive compared to those of U.S. competitors, and has raised fears that it will dampen Europe's moderate economic recovery.

The euro, introduced on currency markets in 1999 and in its cash form in 2002, is now 57 percent above its all time low against the dollar of 82 cents from October, 2000.

French President Jacques Chirac said Friday he was "a little bit worried about the weakness of the dollar." He hinted that the European Union should take action.

"This should provoke certain reactions on our part," Chirac added. He declined to elaborate.

Spanish Prime Minister Jose Luis Zapatero sounded more cautious in attempting to halt the rise of the euro.

"We can't speak of a ceiling," he said during a summit of European leaders in Brussels.

Chancellor Gerhard Schroeder of Germany - whose economic recovery has been fueled by strong export growth - also played down concerns over the currency's strength. Schroeder told reporters at the summit that he sees no reason for "serious concern," adding that the exchange rate "is not yet dramatic."

The ECB has kept its key euro-zone interest rate unchanged for 17 consecutive months at 2 percent. Most analysts still bet the bank will not raise interest rates for several quarters.

After the ECB held rates steady at its meeting Thursday, bank president Jean-Claude Trichet declined to comment on the euro exchange rate, other than to warn that the bank didn't like sudden moves. "Excessive volatility and disorderly movements in exchange rates are undesirable for economic growth," he said.

The bank has made similar statements in past months in an attempt to slow the euro's rise. Backing up the warning is the possibility that the bank could intervene by selling currency reserves in an attempt to moderate the rally if it thinks it's going too fast.