The euro climbs to new heights
Get ready to shell out more for that European vacation, and for your favorite goodies exported from the Continent.
The euro currency hit a record high against the dollar Friday, surpassing its previous peak reached in 2004.
New Yorker Russell Phillips, who was visiting Berlin’s famed Brandenburg Gate this week, said he was trying not to think about the dollar’s sinking value.
“Maybe I’ll regret it when my credit card bills come,” he said. “Of course, everything is more expensive.”
But the euro’s ascent may be good news for Americans who own European stocks, such as via foreign mutual funds. The strong euro is boosting returns for U.S. investors.
And for many multinational U.S. companies, what’s driving the euro -- a surprisingly healthy economy on the Continent -- is translating into better-than-expected earnings.
That, in turn, is underpinning Wall Street’s spring surge. The Dow Jones industrial average inched up to another record high Friday, adding 15.44 points, or 0.1%, to 13,120.94.
The euro, the 8-year-old common currency of 13 nations including Germany, France and Italy, jumped as high as $1.368 on Friday, topping the $1.367 record set in December 2004. The euro’s value eased a bit later in the day, and it ended trading at $1.364 in New York.
Just six months ago it took $1.27 to buy one euro. At the currency’s record low in 2000 the U.S. cost was a mere 82.7 cents.
The euro’s powerful advance in recent months has been fueled in large part by economic fundamentals: The European economy has shown sustained strength at the same time that the U.S. economy has faded.
Money tends to flow into stronger economies -- lifting their currencies -- because “investors naturally favor an area that’s growing well,” said James Glassman, economist at JPMorgan Securities in New York.
On Friday, the Commerce Department issued its initial estimate of first-quarter economic growth, and the data confirmed that the U.S. has slowed sharply. The economy expanded at a 1.3% annualized real rate in the quarter, the slowest in four years.
By contrast, recent economic data from Europe have been upbeat. Consumer and business confidence surveys this month in Germany, the Continent’s biggest economy, showed rising optimism.
But for American tourists in Europe, the “almighty dollar” has become a painful joke.
At $1.364 per euro, $100 buys 73.3 euros, down from nearly 79 euros six months ago and 121 at the euro’s low in 2000.
The rate of $1.364 per euro is for large transactions among banks. Individuals exchanging small amounts are likely to pay more, probably north of $1.40.
The greenback also has weakened this year against the Australian and New Zealand dollars, the Brazilian real and the British pound, among other currencies.
It took $1.997 to buy one British pound Friday, up from $1.80 a year ago and near the highest level in 15 years.
“I’m here partially on business, otherwise we couldn’t afford our stay here,” said Adam Traidman of San Francisco, who was taking in the sights around Covent Garden in London this week with his wife Cindy and baby daughter Jasmin.
“I last came to London many years ago, so the prices are quite a shock,” Traidman said. “We’re paying double what we would at home in restaurants. Shopping? No, we’re not doing that.”
The flip side for countries with rising currencies is that it means the U.S. is on sale for their consumers.
“From January through the end of April we’ve seen an increase in our bookings by 10%, with the people aiming for the West -- California, Arizona, Nevada -- this year,” said Roger Thompson, director of North American travel at an independent British travel company.
For foreign companies, however, a rising currency means their exports can be more expensive for American buyers, unless the exporters accept less profit.
Still, European Commission President Jose Manuel Barroso put the best face on the situation Friday. After giving a speech at the New York Stock Exchange, he told reporters that “a strong currency is a good thing. It’s a signal of confidence in the European economy.”
A growing economy also may mean that the European Central Bank will continue to raise short-term interest rates, which could attract more global investors to European bonds and bank accounts -- and further boost the euro, analysts say.
For now, American investors in European and other foreign stocks are enjoying the best of both worlds: Economic strength abroad has pushed many foreign stock markets higher. And rising foreign currencies mean those stocks are worth more when translated into dollars.
The German stock market is up 11.8% in euros this year and up 15.8% in dollars.
The same beneficial currency-translation effect, as well as improving demand abroad, have fueled better-than-expected first-quarter earnings for U.S. multinational companies including 3M, Whirlpool and Boeing, driving their stocks up.
“The rest of the world is making our downturn [in growth] less severe,” said Joe Carson, economist at money management firm AllianceBernstein in New York.
Among Friday’s market highlights:
* Most major market indexes showed little change, as some investors paused to digest the hefty gains in stocks this month. Losers outnumbered winners by 4 to 3 on the NYSE.
The Standard & Poor’s 500 index fell 0.18 of a point to 1,494.07. It was up 0.6% for the week, the fourth straight weekly gain.
* The Nasdaq composite index inched up 2.75 points, or 0.1%, to a fresh six-year high of 2,557.21. Nasdaq was boosted by Microsoft, which rose $1.02 to $30.12 after its upbeat earnings report Thursday.
* General Electric helped the Dow, gaining $1 to $36.84 on speculation that the company might spin off some units, including NBC Universal.
* Shares of Goodyear Tire & Rubber surged $1.91 to $34.41. Although the company reported a first-quarter loss, it again boosted its cost-cutting goal, encouraging investors.
* Airline stocks slid as some analysts raised concerns about fuel costs and fares. Continental fell $2.53 to $36.25. UAL, parent of United, lost $2.94 to $34.01.
* Crude oil futures resumed their climb, adding $1.40 to $66.46 a barrel in New York.
* Treasury bond yields held steady despite the weak U.S. growth report. The 10-year T-note yield ended at 4.69%, down from 4.70% on Thursday.
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Times correspondents Janet Stobart in London and Christian Retzlaff in Berlin contributed to this report.
