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Last Updated: Monday, 5 January, 2004, 22:45 GMT
Dollar sags to new record low
Dollar bills
The dollar looks set to stay weak
The US dollar has skidded to yet another record low against the euro.

The US currency also fell against the pound, dropping to levels last seen in September 1992.

The slide followed a prediction from Ben Bernanke, a governor of the US Federal Reserve, that US interest rates would remain low for some time.

Concerns about the US trade deficit and security fears continued to hit home, and by 1930 GMT on Monday the euro was worth $1.267.

The pound, meanwhile, was worth $1.8068 - up 0.6% on the day.

Despite the driving strength of US shares, registering near-triple digit gains on Monday, precious metals fulfilled their traditional role as a safe haven for worried investors.

Gold shot up to a 14-year high of $424 an ounce in London, driven by the weakness of the dollar and the continuing worries about global security which saw it rise 20% in value in 2003.

Patience needed

US interest rates are at a 45-year-low as the central bank has held its key overnight rate at 1% since June 2003.

euro/dollar exchange rate

Mr Bernanke said he believed that the Federal Reserve's low interest rate policy was "justified by the current low level of inflation".

He concluded that as the US central bank had no need to counter inflation it could afford to keep rates low to help firms gain from the emerging economic recovery.

"For now, I believe that the Federal Reserve has the luxury of being patient," Mr Bernanke told a conference of the American Economic Association.

He cited rising commodity prices as a sign of economic recovery, though he noted that the labour market remains weak.

With interest rates set to remain at rock-bottom levels, global investors are less keen to buy US assets because the returns are slimmer - and therefore need fewer dollars, bringing the exchange rate down.

But that could have a sting in the tail, some economists warn, since the huge trade and government deficits on which the US is running depend on foreign buyers of US debt to stay manageable.

Dollar's slide

The dollar declined 21% against the euro in 2003.

It has also suffered against the yen, though the Japanese government has stepped in prevent an overly-strong yen from hurting the country's exports. The dollar is currently worth 106.5 yen.

Mr Bernanke dismissed fears of a "dollar crisis", saying there was no serious risk.

He said 2003 seemed to have "marked the turning point for the US economy", giving grounds for optimism about increased growth and job creation.

Analysts said Mr Bernanke's remarks had confirmed their expectations that current trends would continue.

"It's a continuation of where we left in 2003 - the US needs more inflows to fund its widening current account deficit...but stronger growth will exacerbate the deficit," said Steven Pearson of Halifax Bank of Scotland.




SEE ALSO:
Dollar slumps to new record low
31 Dec 03  |  Business
Dollar at record low versus euro
22 Dec 03  |  Business
Dollar hits new low against euro
17 Dec 03  |  Business
Q&A: Why the dollar's in decline
09 Dec 03  |  Business
The fall and rise of the euro
05 Jan 04  |  Business


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