- The Washington Times - Wednesday, December 31, 2003

NEW YORK (AP) — The dollar continued to tread on a downward path yesterday as the euro shot above $1.26, notching the latest in a string of record highs against the battered U.S. currency.

The 12-nation European currency, which has risen more than 20 percent against the dollar this year, reached $1.2647. It eased to $1.2572 in late New York trading, up from $1.2549 late Tuesday.

“Fundamentals still require the dollar to fall and a floor on that process has yet to emerge,” said Peter Morici, professor of international business at the University of Maryland.

The release of lower jobless-claims figures — the lowest in nearly three years — indicated that U.S. businesses are more confident that the economic recovery is genuine. But the news was shrugged off by a market preoccupied with the U.S. budget and trade deficits.

“Late-year volatility is simply playing itself out,” said Parul Jain, deputy chief economist at Nomura Securities International.

Mr. Jain predicted that in the new year, people will realize the U.S. economy is strong, deflationary pressure is easing and the Fed will “probably engage in a rate hike, probably late 2004 or early 2005,” all of which would be supportive of the dollar.

Analysts differed on what point government intervention is likely.

“Even though U.S. policy-makers have talked of the dollar having an orderly decline, a 15 percent decline in four months can hardly be described as orderly,” said Michael Woolfolk, senior currency strategist at the Bank of New York. “It is unsustainable and requires attention.”

Mr. Woolfolk expects verbal intervention on both sides of the Atlantic at the $1.30 level. “If we see $1.30 anytime soon, [Federal Reserve Chairman] Alan Greenspan would wake up in the middle of the night and start making phone calls,” he said.

Others disagree, saying there is no evidence that the movement is disorderly. “The prospect for actual intervention for euro-dollar remains remote at this point,” said Dan Katzive, currency strategist at UBS. “There isn’t any evidence that policy-makers are expressing concern on the movement.”

The British pound rose to a new 11-year high of $1.7878 before backtracking to $1.7834 in late New York trading, compared with $1.7787 Tuesday. The dollar was quoted at 107.36 yen, up from 107.06 yen late Tuesday; 1.2399 Swiss francs, down from 1.2424, and 1.2882 Canadian dollars, down from 1.2936.

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