Dollar hits new record low against euro
The plunging US dollar hit a new record low against the euro today as data showing a decline in US housing sales further alarmed traders.
The greenback slipped to $1.3534 against Europe’s single currency after breaking through the psychological $1.35 mark yesterday.
Movements are likely to be exaggerated due to the fact that US financial markets are closed today for the Christmas holidays, meaning small trades in currencies can have a disproportionately large effect.
But most analysts agree that the dollar is destined for a period of prolonged weakness and may even fall below the $1.40 mark against the euro by the end of 2005.
The US dollar has been weak against major currencies this year because of worries that the massive US budget and current account deficits are unsustainable.
Data released in the US overnight added to jitters about the health of the world’s biggest economy, with year-on-year sales of new homes in America falling 12% in November.
At the same time, consumer spending grew at a slower rate than expected by the market – up only 0.2% last month after rising 0.8% in October.
A weak dollar makes European exports to the US more expensive and erodes exporters’ overseas earnings when they are converted back to the euro.
Currency traders are unwilling to buy the greenback in large quantities because they believe there is little appetite among US policymakers to stop the dollar from declining further.
Some economists have predicted that the dollar may need to fall by another 20-30% to stop the US current account deficit rising.
