Dollar Tumbles to New Low Against Euro

Dec. 2, 2003
By John Parry

NEW YORK (Reuters) - The dollar fell to a record low against the euro of $1.2089 on Tuesday according to Reuters data, with traders citing persistently negative sentiment on the dollar for the decline.

The greenback lately has failed to post gains on a stream of robust U.S. economic data. But Tuesday's data calendar was light, so even that support has vanished at least temporarily.

"In the absence of anything new or fresh hitting the market...the dollar keeps sliding. The market is more and more of the view that a weaker dollar suits the U.S. economy and that a global economic recovery depends on the dollar being allowed to slide," said Thomas Molly, a trader with Bank Alumni in New York.

Some strategists said the euro is butting against a technical resistance level at $1.2090. Additional resistance was seen at $1.2132. Gold also capitalized on the dollar's weakness, jumping to its highest level in more than 7 1/2 years.

Enduring concerns over U.S. economic imbalances -- most notably the wide U.S. current account deficit -- outweighed evidence of a strong U.S. economic recovery, analysts said.

The dollar's recent inability to rally, either on signs of a U.S. economic rebound underscores the greenback's persistently negative tone, analysts said.

"The trend of late has been to completely ignore any good numbers out of the United States, so I don't know that it is necessarily important what the numbers are: they just seem to generate volatility and dollar selling," said John Beerling, regional foreign exchange trading desk manager for Wells Fargo in Minneapolis.

"Good numbers are at best a reason to pause. It's just the overwhelming (dollar) baritones right now," Beerling added.

The dollar brushed aside a report by job placement firm Challenger, Gray & Christmas, Inc, which said that the number of job cuts announced by U.S. employers fell 42 percent in a holiday-shortened November.

On Monday, the Institute for Supply Management's manufacturing index for November reached the highest level in two decades. Construction spending also posted a fourth consecutive month of record highs in October.

But after receiving muted support from these reports on Monday, the dollar has since relapsed.

The greenback dipped briefly after initial reports of a plane crash in Long Island turned out to be a small aircraft accident, with the dollar's slip underscoring traders' nervousness about security concerns.

Late Tuesday morning in New York, the euro was up 0.9 percent on the day at $1.2075. Against the yen , the dollar was down 0.3 percent at 109.05 yen. Against the Swiss franc , the dollar was at 1.2871 francs, down 0.8 percent on the day.

The pound hit multi-year highs and was up 0.6 percent at $1.7281.

Only secondary U.S. data was reported on Tuesday and investors were looking ahead to Friday's U.S. employment report for signs of improvement in the labor market.

"Data-wise, today is light and investors are looking to U.S. asset markets," said Paul Mackel, currency strategist at ABN Amro in London. "Euro/dollar direction will also come from dollar/yen."

But with hopes for a recovery already well priced in, concerns over the U.S. current account deficit and Washington's handling of post-war Iraq undermined the positive impact on the dollar.

The euro was unmoved by comments from European Union Economics and Monetary Affairs Commissioner Pedro Solbes, who said discussions over the Stability Pact would affect markets.

Elsewhere, the Bank of Canada kept interest rates steady at 2.75 percent on Tuesday, as expected. The U.S. dollar traded at C$1.2970 .

The Reserve Bank of Australia is expected to raise rates by 25 basis points to 5.25 percent when it meets late on Tuesday (New York time).

Rate hike expectations pushed the Australian dollar to six-year highs against the U.S. dollar and five-month highs versus the yen.

The Australian dollar traded at US$0.7314 . The currency is now up some 30 percent since its 2002 close.

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