Dollar breaks $1.30 barrier against euro
The rise came as the Federal Reserve raised US interest rates by a quarter percentage point for a fourth time this year, citing brightening job markets that likely mean more increases lie ahead.
The unanimous decision by the US central bank’s policy-setting Federal Open Market Committee moves the benchmark federal funds rate - which affects credit costs throughout the economy - to 2% from 1.75%.
The Fed began to lift rates in June from a rock-bottom 1% and said in its post-meeting statement it expected to be able to keep on a “measured” course of rate increases.
The latest rise follows Friday’s Labour Department report that showed the creation of a surprisingly large 337,000 jobs last month.
“Output appears to be growing at a moderate pace despite the rise in energy prices, and labour market conditions have improved,” the Fed said in outlining its rate decision, which also boosted the largely symbolic discount rate to 3%.
“The committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity,” it added in language that mirrored its prior rate statement and gave no hint of a halt anytime soon.
The dollar’s fall came despite new economic data showing that America’s economy is perking up.
The trade gap, which has reached an all-time high under President Bush, has begun to narrow.
Yesterday, the figures from the US Commerce Department showed the deficit narrowed to $51.6 billion in September with oil imports showing a large fall.
There was also an unexpected surge in exports over the period, something that should have provided some relief to America’s beleaguered currency.
And on the employment front, the number of Americans filing initial claims for jobless benefits rose 2,000 to 333,000 last week, the Labour Department said.
“Even though the data was better than expected, the idea of a $50bn monthly trade deficit still is something that is very recent and remains worrying,” said Bob Lynch, currency strategist at BNP Paribas in New York.
The smaller that expected trade deficit in September, along with revisions to August, will add about 0.4% points to gross domestic product growth for the quarter before the subtractions for inventories and construction spending, said Peter Kretzmer, economist at Banc of America Securities.
“So far, it appears that the advance GDP growth estimate of 3.7% is likely to be revised upward by a few tenths.”
However, even with the data, the euro touched $1.3007 yesterday afternoon, beating its previous high of $1.2987 set on Monday. It eased back in later trading.
Economists said higher oil prices and fears that President Bush will make the US budget position worse by extending tax cuts have sent the dollar lower.
