Dollar declines to fresh euro low

After more reports of losses in the US banking sector, the dollar touched $1.4822 against the euro at the close of trade in the US.

This was worse than the dollar's previous record low of $1.4752 for one euro, seen at the start of the month.

The dollar also weakened against sterling, with one pound worth $2.066.

On 9 November, the pound hit $2.1144, its highest level against the dollar since the early 1980s.

Rate moves

The continuing dollar weakness has been sparked by the US bad mortgage debt crisis, and the knock-on credit squeeze, which has led to a growing number of American banks revealing multi-million dollar losses.

"The Fed and the money markets are staring each other down and the question is who will blink first"
Thomson analyst John Noonan

This has weakened the dollar as analysts expect the Federal Reserve to cut US interest rates further when it meets in December in an effort to ease problems in both the housing and credit markets.

Lower interest rates make the dollar less attractive for currency investors, who instead have been turning to other currencies, such as the euro, pound, Swiss franc, and Japan's yen.

"The Fed and the money markets are staring each other down and the question is who will blink first," said Thomson analyst John Noonan.

The Fed last cut interest rates in October to 4.5%.

"Markets have been very sensitive to a bunch of negative news from the US, forcing investors to shun risk and instead hedge their positions," said Hideaki Inoue, chief foreign exchange strategist at Mitsubishi-UFJ Trust.

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