Dollar hits record lows against euro

THE dollar hit record lows against the euro for a fourth straight day yesterday as investors warmed to the view that a recovery in the US economy would do little to narrow the wide US current account deficit.

The dollar traded skittishly but mostly lower on the day after a US service sector report undershot forecasts. The Institute for Supply Management non-manufacturing index came in at 60.1 in November, below economists’ consensus forecasts for a reading of 64.3 and down from 64.7 in October.

“In the current environment of US strong economic data (the non-manufacturing report) failed to provide a boost to the dollar,” said Sean Callow, currency strategist at IDEAglobal in New York.

“We have a low degree of confidence among investors that strong US economic growth is going to translate to a stronger currency simply because the stronger data has not produced yield advantages and/or significant equity market outperformance in the US.”

While the US Fed funds rate stands at a 45-year low of 1% and is not expected to rise imminently, higher interest rates in many other major economies have dulled the dollar’s appeal to foreign investors.

Signs that Germany was not worried by the euro’s persistent climb gave added encouragement to euro bulls who bid the single European currency up to peaks above $1.2125 earlier in the global day, bringing its gains to some 16% since the start of the year.

The euro is trading some three-and-a-half cents higher than its launch level where the currency first traded around $1.1747 in January 1999. It reached a low near $0.8225 in October 2000.

“The dollar is looking more at the structural imbalances in the United States rather than economic data,” said Michael Cairns, trading manager with FX Solutions in Ridgewood, New Jersey.

“Dollar weakness is a massive underlying trend at the minute,” he added.

The next resistance levels for the euro lie at $1.2149, then $1.2168, above which it could rise as high as $1.2400, Cairns added.

Early in the US session, the dollar made only muted gains against the euro in response to third quarter US productivity data that was revised up to show growth of 9.4%.

The market’s main focus remains the US November non-farm employment report due on Friday, analysts said. Economists’ consensus forecasts are for a rise of 135,000 in payrolls.

Midmorning yesterday in New York, the euro was up 0.2% to $1.2103. Against the yen, the dollar fell 0.4% to 108.19 yen. Against the Swiss franc, the dollar was at 1.2872 francs, down 0.06%.

The pound was down 0.08% at $1.7280.