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Last Updated: Thursday, 20 September 2007, 16:42 GMT 17:42 UK
Dollar hits new low against euro
Money changer exchanges euros for dollars
The dollar has been weakening against the euro in recent weeks.
The US dollar hit a new record low against the euro as investors sold the currency after the Federal Reserve's hefty interest rate cut.

The greenback dropped below the psychologically-key $1.40 level against the euro, deepening recent losses.

Meanwhile, the Canadian dollar reached one-to-one parity with the US currency for the first time in 31 years.

A strong domestic economy and concerns about a US economic slowdown have led to the rally on Canada's Loonie.

Dampen costs

The euro reached as much as $1.4099 in Thursday trading, its highest level since the single European currency was launched.

Hints of rate rises from the European Central Bank and stronger European growth have also boosted the euro's value.

Analysts have said that the impact of the plunging dollar on European consumer and businesses may be mixed.

Eurozone consumers may benefit from cheaper prices for some imported goods, while input costs for eurozone firms may fall as oil, metals and many raw material prices are quoted in dollars.

However, while the strong euro may cut some import costs, it could also have a negative effect on exports as European-made goods become more expensive.

The US is Europe's largest trading partner.

It could also hurt growth in Asia, with the US being the largest market for China, Korea, and other Asian exporters.

Dollar problems

The dollar has been weakening for some time.

The fundamental problem is the growing US trade deficit - now more than $700bn - as the US economy has imported far more goods than it has exported.

This has long been seen as unsustainable, and in the long-run some kind of currency adjustment has been seen as both inevitable and desirable.

But the US central bank's recent change in policy has accelerated the decline, because people who put their money in dollars no longer get such a high rate of return.

The Fed cut rates in order to stem problems in the US housing market, caused by an increase in the number of people defaulting on loans, which could cause an economic slowdown across the board.

A US economic slowdown could also hurt the dollar in the short-term, although it might also lower the trade gap as there could be less demand for foreign goods by US consumers.

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