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Dollar falls to record low on euro

The euro has gained 3.5 percent against the dollar since the start of February.
The euro has gained 3.5 percent against the dollar since the start of February.

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LONDON (Reuters) -- The dollar fell to a record low versus the euro Wednesday as upbeat U.S. data this week failed to alter investors' bearish view of the U.S. currency.

The euro purchased $1.2927 as European trade opened but later trimmed its gains to stand half a percent up on the day at $1.2900. It has gained 3.5 percent since the start of the month.

The dollar was trading around 105.57, virtually unchanged from Tuesday's late New York trading.

Wednesday's decline against the euro came after encouraging U.S. capital inflow data Tuesday proved insufficient to banish concerns about U.S. twin budget and current account deficits and low interest rates.

Overseas investors often look for higher rate environments to get higher returns on some rate-sensitive securities, such as CDs.

Receding expectations that the European Central Bank (ECB) would intervene in the market or cut interest rates also emboldened traders to test the European authorities' resolve to curb the euro's strength, traders said.

"We had good U.S. data yesterday, but the dollar didn't gain enough on it and at a certain point, dollar optimists threw in the towel," said Peter Fontaine, market strategist at KBC in Brussels.

"You see at every euro dip there are new buyers, both speculative and corporates. People want to sell U.S. dollars against the Aussie, sterling and euro, so it's clear people are going for the currencies with the biggest rate differential."

The yen failed to gain from surprisingly robust Japanese economic growth data as traders kept cautious amid suspicions that Japanese authorities stepped into the market on Wednesday to curb their currency's strength.

Government data showed the Japanese economy expanded by 1.7 percent in October-December from the previous quarter, beating economists' expectations for an expansion of 1.1 percent. On an annualized basis, GDP grew a real 7 percent, well ahead of a 4 percent expansion in the United States in the same period.

"The GDP data was much stronger than the market had expected, but the market is having difficulty selling the dollar versus the yen on spreading talk about dollar bid orders near 105.60 yen," said Yoshihiro Nomura, forex section manager at Trust & Custody Services Bank in Tokyo.

Analysts said the data would likely give a boost to the yen in the long term and Japan may find it hard to justify stepping in to sell the yen.

"The government may find it difficult to intervene in the currency market, given its case for such action -- that the yen should not strengthen when economic fundamentals are weak -- could be weakened," said Norihiro Fujito, senior investment strategist at Mitsubishi Securities.

Still, Finance Minister Sadakazu Tanigaki said Wednesday that it was too early to say that Japan had dug itself out of deflation, adding that the government had not changed its policy of intervening in the market to stem volatility.

Copyright 2004 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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