Euro hits record high against dollar

THE euro hit a new record high against the dollar, rising above the former record achieved last February of $1.2927 as traders trundled out of the dollar and into the European currency.

The beleaguered US currency weakened across the board as many investors took the opportunity to align with the more secure euro.

The dollar’s bounce from strong US employment data earlier in the day proved fleeting, as dealers, got out of the dollar en masse and into the euro.

As previously reported, concern about record US trade and budget deficits, saw an opportunity to sell the dollar lower.

This involved buying euros en masse, taking out options barriers around $1.2900, and then at the previous all-time high of $1.2927.

The euro climbed above the high of $1.2927 hit on February 18, touching a record peak around $1.2935.

Global policy-makers have recently appeared fairly tolerant of the dollar’s decline, and their laissez-faire attitude has encouraged investors to continue selling the US currency.

Some Federal Reserve officials recently signalled the dollar would have to fall if the US trade gap remains wide.

That official line is not new and commentators have been pointing out that US policy for the past three years has been to let the dollar slide to counter the huge deficits they have built since taking office.

Those deficits are seen as a major threat to the US dollar lover in the next period of office for the Bush administration.

Projections the dollar will sink to €1.32 by end 2005 look a bit modest, and some fear the dollar cold hit an irreversible slide if investors lose confidence in the dollar as a safe-haven investment.

Oil prices too are casting a long shadow over the future outlook for the world’s largest economy.

That continuing fear, despite sole easing of in-global demand, has compounded worries about the strength of the economy and added to the fears over the dollar, analysts said.

Earlier the dollar rallied briefly as good news on jobs filtered through. This followed reports by the US Labour Department, which said 337,000 people were added to the payroll in October.

While the figures were very good, pessimism about the growing US deficits and the very high oil price, that is expected to stay high for the next 12 months, are creating major investor concerns, said Dorothea Huttanus at DZ Bank in Frankfurt.

She says the euro will break through $1.30 within a week.

This is a double-edged sword for Europe where the strong euro makes EU exports more expensive across the globe.