Dollar at record low against euro
The dollar fell to a record low against the euro Thursday after the European currency topped $1.43 on reports from Washington that growing economic weakness was boosting jobless claims.
The euro rose as high as $1.4309 after the U.S. Labor Department reported that initial applications for unemployment benefits hit 337,000 last week -- up 28,000 from the week before and the biggest one-week surge since the week of Feb. 10, when claims jumped by 42,000.
The 13-nation currency settled back to $1.4293 -- up more than a penny from $1.4186 in late New York trading Wednesday and higher than its previous record of $1.4282 set Oct. 1.
The dollar also weakened against the British pound, which climbed to $2.0448 from $2.0355 in New York the day before.
Exchange rates will be hotly debated at an annual meeting of central bank heads and finance ministers from the Group of 7 industrialized countries in Washington this weekend, said Michael Woolfolk, senior currency strategist at the Bank of New York.
“The fact that the euro has risen suggests that the negative dollar sentiment is strong and persistent” because of expectations that Europe will have higher interest rates and faster economic growth than the U.S. will, Woolfolk said.
European officials are worried that the euro’s rise against the dollar will hurt exports to the U.S. and China. The European Central Bank is expected to raise interest rates by January. In the U.S., the Federal Reserve is likely to reduce rates at the end of the month, Woolfolk said.
The Fed’s half-point reduction in its benchmark rate last month has helped push the dollar down against other major currencies. Although lower interest rates can jump-start an economy, they also can weaken a currency as investors transfer funds to countries where their deposits and fixed-income investments bring higher returns.
The increase in unemployment applications was more than economists had expected and was taken as a possible sign that the labor market was starting to weaken under the weight of a severe housing downturn and tight credit markets.
Treasury Secretary Henry M. Paulson Jr. and Fed Chairman Ben S. Bernanke warned this week that the housing crisis was likely to last longer than had been projected. Also, the Commerce Department reported Wednesday that construction of new homes and apartments plunged to a 14-year low in September. And the National Assn. of Home Builders’ survey of builder confidence fell in early October to the lowest level in the survey’s 22 years.
Many analysts say the economy will avoid a recession because they expect the Fed, whose rate drop last month was its first in four years, will cut rates again if conditions weaken further.
