November 8, 2004
Yahoo News
LONDON (AFP) - The euro rose to a new record summit close to 1.30 dollars with analysts warning of gloomy prospects for the US currency as markets focus on the swelling US trade and budget deficits.
The single European currency reached a new all-time summit of 1.2987 dollars in early European trading.
The euro later stood at 1.2971 dollars, against 1.2970 dollars late on Friday in New York.
Dealers are worried about how the United States will attract the necessary capital inflows to fund the deteriorating trade balance and budget deficit. The fear is that overseas investors might lose confidence in the debt-ridden US economy, placing their money elsewhere.
"The failure of the dollar to derive any support at all from the far stronger than expected employment report from the US on Friday points to a very grim outlook for the dollar in the near-term," said Derek Halpenny, analyst at the Bank of Tokyo-Mitsubishi.
"With the foreign exchange market now focused entirely on the problem of the US budget and current account deficits, there is a real risk that dollar selling becomes a crisis of confidence," he added.
Last month, Washington announced a record 2004 budget deficit of 413 billion dollars, while the trade deficit in August rose to 54 billion dollars, the second largest ever.
On Friday the euro smashed a previous all-time summit of 1.2929 dollars reached February 18.
The slump in the value of the dollar came despite news that the US labor market created a seven-month record of 337,000 new jobs last month.
"The price action highlights the renewed dominance of structural dollar negatives over cyclical dollar positives," ABN Amro analysts wrote in a note to clients.
"With positive US data surprises not providing the dollar with support... further declines are very likely."
Market concerns about the ballooning US trade and budget deficits appear to have increased in the wake of US President George W. Bush's re-election win last week.
"Rising interest rate expectations on signs that recent oil price increases may not have the impact on consumer spending that was expected are being ignored due to growing concerns that four more years of President Bush will result in worsening budget and current account deficits," said Halpenny.
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