Dollar falls to multiyear lows against its rivals
NEW YORK -- The dollar fell to multiyear lows against its major foreign rivals Monday amid persistent worries over the U.S. economy, setting an all-time low against the euro for the seventh consecutive day.
The euro surged again versus the dollar Monday, bringing its gains against the greenback this year to more than 16 percent. Some said the fall of the dollar, which slipped as far as $1.2238 against the euro before strengthening slightly, has taken on a momentum of its own.
The dollar also sank to an 11-year low against the pound, which hit a high of $1.7361, and a three-year low against the yen.
In late New York trading, the euro drifted slightly lower, buying $1.2228, up from $1.2166 late Friday, while the dollar bought 107.38 yen, up from its lows of the day, but down from 107.65 yen late Friday in New York.
The British pound rose to $1.7329 from $1.7299. The pound's intraday high in European trading was its best vs. the dollar since Sept. 18, 1992.
The new euro high is seen more of a sign of a weak dollar rather than any strengthening of the common European currency shared by 12 countries.
"The dollar's downward move reflects the fundamentals," said William Dudley, chief U.S. economist at Goldman, Sachs and Co. "The dollar's weakness is appropriate given the large U.S. trade deficit."
Though a weakening dollar will help improve the trade deficit, it is a path that will take many years, he added.
The weaker dollar makes life tougher for U.S. tourists or Americans working overseas, but helps U.S. exporters by making their goods cheaper against foreign competition. On the other side of the equation, too strong a euro or yen could hurt Europe and Japan's fledgling economic recovery.
The United States needs foreigners to buy U.S. assets such as stocks and bonds to offset the effects of the budget and trade deficits on the dollar. Bad economic news can discourage investment and therefore push the currency down.
Dudley predicted the dollar's decline will be greater against the euro than the yen because the Bank of Japan is likely to continue to intervene to prop up the yen, as traders said it did Monday. A stronger yen makes Japanese exports more expensive abroad.
"Certainly the price activity seems to suggest that the Bank of Japan is providing some assistance," said Michael Woolfolk, senior currency strategist at the Bank of New York.
The fact that the dollar is declining against the euro and not against the yen shows that they want to slow down the decline of the dollar-yen," Woolfolk said.
The dollar's low for the day against the yen of 107.27 yen was its lowest level since Sept. 21, 2000.
Traders remain skeptical about recent signs of recovery for the U.S. economy, especially against the backdrop of the U.S.-led occupation of Iraq and the possibility of another terrorist strike.
"The complexion of the market has not changed much in the past few weeks," said Kevin Lawrie, vice president at Mellon Bank. Giving the example of the market not reacting to the removal of the steel subsidies, he said "It is hanging on to the bad news. Globalization seems to have set new rules and taken away some of the old givens in the market."
Lawrie said there may be some year-end factors affecting the market, too. "As the markets come back in 2004, we'll stick our fingers out and see what happens."
"It's kind of a bull run in the market," said Kornelius Purps, a financial markets analyst for HypoVereinsbank in Munich. "The perception is that there is only one way for the euro to go, and that's up."