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Last Updated: Wednesday, 10 November, 2004, 23:45 GMT
US deficit pushes euro over $1.30
Foreign exchange traders
Wall Street has cheered the election, but the dollar has fallen sharply
The dollar has slumped to a new record low against the euro, breaching the $1.30 level on news of another large trade deficit.

The US trade deficit - a key concern for President George W Bush's second term - exceeded $50bn for the fourth month in a row in September.

This has combined with fears over oil prices, which have risen by two-thirds this year alone, to hurt the dollar.

The euro has now risen by 10 US cents in a month.

The euro slipped back below $1.30 later on Wednesday as a major rise in the value of US exports in September was taken into account.

European fears

Stock markets were largely unaffected by the dollar's continued weakness, the Dow Jones Industrial Average trading broadly flat on Wednesday.

However, the Federal Reserve's decision to raise interest rates by 0.25% to 2% was seen as likely to help stabilise the currency.

A strong euro has raised economic fears in Europe, where exporters want the dollar to stay strong to boost their international competitiveness.

The US dollar's decline

The euro rose to $1.3007 after it emerged that the US had recorded a $51.6bn trade deficit in September.

The deficit was 3.7% lower than August's figure but remained above $50bn due to high oil prices and a record $15.5bn deficit with China.

Record exports

The value of US exports rose 0.8% to a record $97.5bn, providing evidence that the sharp fall in the value of the dollar in recent times may be beginning to have an impact on America's trade balance.

The US currency has been weakening for much of the past year, pressured by worries over the US' record $427bn budget deficit.

US trade deficit
The US trade deficit has been growing remorselessly

European Central Bank president Jean-Claude Trichet recently expressed concern about the impact of a weak dollar on European competitiveness describing the rise of the value of the euro as "brutal".

The weak dollar will make European and Asian exports more expensive, and hence less competitive, in the US.

Analysts have warned that this could seriously dent the European economy which relies on exports for much of its growth amid sluggish domestic demand.

Further rise?

Carsten Fritsch, an economist with German bank Commerzbank, said he expected the euro to rise to a level of $1.35 within the next six months.

"I think for a lasting break of this $1.30, we will need some fresh disappointing news from the United States."

The US has got these massive deficits that nobody wants to buy into
David Bloom, HSBC

The dollar's slide means that foreign central banks, particularly in Asia, and international financial institutions are less likely to buy US stocks and bonds.

"The US has got these massive deficits that nobody wants to buy into," David Bloom, a currency strategist at HSBC told the Associated Press.

"It needs to be every body to be buying dollars all day, every day and the world's doesn't want to do that."

Why a weak dollar offers mixed blessings


FTSE 100
23.70 0.44%
19.54 0.34%
Cac 40
14.48 0.38%
Dow Jones
78.53 0.76%
35.31 1.58%
BBC Global 30
20.65 0.36%
Data delayed by at least 15 minutes

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08 Nov 04 |  Business
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05 Nov 04 |  Business
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05 Nov 04 |  Business

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