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| Dollar hits new low versus euro |
| The US dollar has fallen to new record lows against the euro as investors fret about a world credit crunch
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| UNITED STATES OF AMERICA
, 13-September-2007
10:15:34 AM |
| In European trading, the greenback dropped as low as $1.3927 against the euro, deepening Wednesday's losses.
The dollar has fallen in the past week, amid hopes that Federal Reserve will cut interest rates in a bid to reassure markets over current credit fears.
Analysts expect rates to fall by between a quarter and half a percentage point when the Fed meets next week.
However, as the dollar has weakened, the euro has gained momentum after recent comments from the European Central Bank (ECB) hinting at the possibility of future interest rate rises.
Further gains?
The health of Europe's economy - underlined by strong growth and inflation figures from France - could help push the euro through the $1.40 barrier, some experts suggested.
"The catalyst sending the euro to its latest high against the dollar is the growing expectation that the Fed could trim interest rates by up to 50 basis points at its 18 September policy meeting," said Global Insight economist Howard Archer.
"The euro seems likely to remain well supported against the dollar in the near term at least and could well break through $1.40 imminently."
At the heart of the dollar's decline have been problems in the US housing market, caused by the Fed increasing interest rates in order to slow accelerating inflation.
The increases have led to higher borrowing costs, triggering an increase in the number of people defaulting on loans, especially in the sub-prime mortgage market.
The sub-prime sector specialises in lending to people with poor or non-existent credit histories.
This, in turn, has spread to global credit markets, as many of the sub-prime mortgages were repackaged and sold on to European and UK banks as investment assets.
Good and bad
The impact on the consumer and businesses may be mixed, analysts said.
According to Howard Archer of Global Insight, "eurozone consumers could benefit from cheaper prices for some imported goods".
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