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Last Updated: Monday, 8 December, 2003, 18:09 GMT
Ailing dollar falls to record low

The dollar has fallen to a record new low against the euro, before Tuesday's interest rates decision in the US.

In late afternoon Monday trading, one euro bought $1.2241, a new high, as the dollar continued to be hit by growing US deficits and low interest rates.

The dollar also stayed near an 11-year low against pound sterling, which buys $1.7251, and it fell to 107.1 yen.

The US Federal Reserve Board had been expected to keep interest rates low, but may now be persuaded otherwise.

Meltdown

Yet while a rise would help stabilise the dollar, recent worse than expected US job creation figures suggest the wider American economy would not enjoy a hike.

But Hedge fund economist Neil Mackinnon, said the dollar's fall could turn into meltdown, unless action was taken by the authorities.

The dollar's decline, which has been mirrored against the Thai, Taiwanese, Singaporean and South Korean currencies, has concerned many Asian governments, since it is hampering their competitiveness in export markets.

Japan, in particular, would like to see the yen fall, as exports are crucial to the country's slow economic revival.

Economists at BNP Paribas said they expect the dollar to "remain under pressure in the near-term."

Deficit

This year, the euro has climbed by more than 15% against the dollar as investors started to pay more attention to the US current account deficit - the balance between what the US buys in goods and services and what it sells.

At present, the shortfall is about 5% of gross domestic product and is set to expand.

The eurozone, by contrast, has a current-account surplus.

The deficit, and the threat of trade disputes and terrorist attack, have overshadowed signs that the world's largest economy is starting to motor.

The latest estimate of economic output, released last month, showed growth in the three months to September hit an annualised rate of 8.2% - the fastest rate for nearly two decades.

Unlikely

Analysts, however, said the disappointing labour figures on Friday meant the Federal Reserve was unlikely to change its stance on keeping rates low for fear of snuffing out any recovery.

And without the lure of higher returns, the US is unlikely to attract the influx of foreign money it needs to underpin its currency, they said.


WATCH AND LISTEN
Bear Stearns chief currency strategist Steve Barrow
"I think the dollar could certainly fall much further than the levels we're currently indicating."



SEE ALSO:
Euro hits record against dollar
28 Nov 03  |  Business
Pound touches 5-year dollar high
24 Nov 03  |  Business
Eurozone interest rates on hold
04 Dec 03  |  Business


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