- The Washington Times - Thursday, December 23, 2004

BERLIN (AP) — The U.S. dollar sank to an all-time low in thin pre-holiday trading yesterday against the euro, which breached the $1.35 mark after a mixed economic report from the U.S. Commerce Department.

After peaking at $1.3506, the euro eased back slightly to $1.3493, up more than a cent from $1.3381 late Wednesday. The previous high of $1.3470 was set Dec. 7.

The 12-nation currency has risen sharply since September, when it was trading for circa $1.20, over persistent concerns about ballooning U.S. trade and budget deficits.

With no end to U.S. economic problems in sight, analysts see the trend continuing.

“I can see it finishing the year around $1.35 and we see that it’s going to be a steady track upward for the euro/dollar in 2005, finishing the year around $1.40,” said Adrian Hughes, a currency strategist with HSBC in London.

The dollar also fell against other rivals yesterday. The British pound rose to $1.9201 in late New York trading, up from $1.9144 late Wednesday. The dollar fell to 103.70 Japanese yen from 104.08; to 1.1440 Swiss francs from 1.1523; and to 1.2334 Canadian dollars from 1.2442.

The euro initially fell against the dollar after its 1999 debut, but it has risen about 63 percent since bottoming out at 82 U.S. cents in October 2000.

The Commerce Department reported that consumer spending grew by a modest 0.2 percent in November, slightly weaker than the 0.3 percent that had been forecast and far short of the 0.8 percent reported for October.

At the same time, incomes grew 0.3 percent in November, more than the 0.2 percent that had been forecast. Still, income growth was weaker than in October, when it hit 0.6 percent.

Most financial markets around the world will be closed today for Christmas Eve, and the euro spike following the mixed news may have something to do with the small amount of trading just before the holiday, Mr. Hughes said.

“The markets are not as they typically are. We’re seeing very low activity and very low risk appetites in the markets for new positions,” he said.

The U.S. administration says it has a “strong dollar” policy but also that it will let market forces set the currency’s strength. Most analysts believe the United States is content to let the dollar fall because it has been making American exports cheaper.

However, Europe’s fragile economic recovery is export-driven, and the strong euro has either been making European goods more expensive overseas or cutting into producers’ profits as they try to hold prices steady.

On Wall Street, investors drove stocks higher yesterday despite the weak U.S. economic data.

To those investors, the falling dollar is an opportunity to help close the trade deficit in the short term, because American goods will be cheaper abroad and should sell well.

In the long term, however, European manufacturers will likely be forced to raise their own prices, which could negatively impact American companies dependent on European-made goods.

European Central Bank President Jean-Claude Trichet has called the rapid increase in the euro’s strength both “unwelcome” and “brutal.” However, the bank has yet to take the next step and intervene in currency markets to halt the dollar’s slide.

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