Global markets fear dollar could fall to $1.60 as US tries to fix deficit

IT was another difficult day for the dollar and oil prices on global markets yesterday.

Concerns are mounting the dollar could fall to $1.60 against the euro as the US administration tries to correct its $600 billion trade deficit.

That decision has the potential to rewrite global economic growth for the next 12 months analysts warn.

With the US heading for Thanksgiving on Thursday, stock markets were quiet with just modest losses across the various stock exchanges.

The dollar, however, hovered close to Friday’s record low of $1.3070, down just marginally at $1.3050.

Bears on the dollar are becoming more pessimistic and the forecasts of the dollar hitting significantly new lows is becoming more pronounced.

The Central Bank of Taiwan warned it could lead to a sharp reversal in growth as well as an international currency crisis.

Ulster Bank Markets economist Niall Dunne said the dollar issue is a double-edged sword for Europe.

Dollar weakness hits euro exports, but cuts the cost of oil imports.

With Texas crude stubbornly close to $50 per barrel yesterday at $48.50, the strong euro is good news given we buy oil in dollars, he said.

He warned, too, the dollar will go weaker. Its levels since the euro’s inception have been too high and “we are witnessing that adjustment now.”

“So long as it continues in an orderly fashion I see very little threat to global growth,” he said.

The one concern is that the dollar will weaken too swiftly and cause panic across global markets, he said.

Euro chiefs are taking comfort from the growth witnessed since quarter two of this year, which came in at 0.5% in Germany and somewhat less in France. Exports were a key factor.

Euro growth is forecast to rise to 1.7% this year, dipping to 1.6% in 2005. Closer to home, concern is high over the dollar weakness.

Irish Exporters’ Association chief executive John Whelan told Finance Minister Brian Cowen things were looking “dire” for many of his members, unless something was done to ease the dollar slide.

He said Ireland’s cost base was rising faster than key competitors’ and called on the State to tackle the cost base and the strong euro.