Euro’s Value Nears Record Low; Yen Gains on Rate-Hike Talk

The euro currency’s value fell again Wednesday, sliding below 90 U.S. cents and further worsening investment returns for Americans who own European stocks.

U.S. tourists in Europe, however, are gaining new buying power with each uptick in the dollar versus the euro.

Meanwhile the Japanese yen rose versus the dollar amid talk that the Bank of Japan could raise interest rates as early as Friday.

The euro slid to close at 89.9 cents in New York, down from 90.2 cents on Tuesday and the lowest since mid-May.

The beleaguered currency is threatening to fall below its record low of 88.45 cents in early May.

What ails the euro, traders say, is simply the still-sterling performance of the U.S. economy relative to the euro-zone economy.

On Tuesday, data showed U.S. workers’ productivity zoomed in the second quarter, suggesting brisk economic growth can continue without fears of inflation.

“It’s ‘America The Beautiful’--productivity is strong, [growth] is strong, unemployment is 4% rather than 10% in Europe,” said Greg Schwake, currency trader at Commerzbank in New York.

In theory, investors want to put their money in the strongest economies. Demand for a country’s investments, in turn, boosts its currency as well.

“The U.S. is generating superior growth performance,” said Michael Lewis, a currency strategist at Deutsche Bank in London. So “foreign direct investment flows are benefiting” the dollar.

What’s good for American tourists in Europe, however, is bad for U.S. investors in European stocks. A weak euro means investment gains denominated in that currency are worth less when translated back into dollars.

Over the last month the German stock market’s DAX index has risen 2.2%. But adjusted for the euro’s fall, an American owning DAX stocks has lost 3.6% in the period. Year-to-date the DAX is up 3.9% in euro terms but down 7% in dollars.

Against the Japanese yen, it’s the dollar that is weak lately: The dollar fell to 107.90 yen on Wednesday, down from 108.62 on Tuesday.

Rumors in currency markets said the Bank of Japan may soon end its 17-month-old policy of holding short-term interest rates near zero. Bank of Japan policymakers meet Friday.

Bank Gov. Masaru Hayami has repeatedly said he wants to raise rates, with the Japanese economy showing signs of recovery. Many analysts believe the bank has simply delayed a rate increase in recent weeks, after the bankruptcy of retailer Sogo last month.