BERLIN – The dollar kept spiraling down Friday, hitting another low against the euro and dropping to a three-year record against the yen, as worries about the U.S. economy depress the currency and raise thorny issues in Europe about how to cope with the growing gap.
The euro flew past its previous high to hit $1.5238, before subsiding to $1.5194 late in New York. The euro topped $1.50 this week for the first time since being introduced in 1999 at $1.17, then surged above $1.51 after markets took comments from Fed Chairman Ben Bernanke as a sign that yet more U.S. rate cuts are on the way.
“The dollar looks set to finish the month with yet more downside pressure being heaped upon it,” said Gary Thomson of CMC Markets in London.
The dollar also slumped to 103.96 Japanese yen on Friday from 105.36 yen in New York the night before. The dollar has not been below 104 yen since March 2005.
The dollar also fell to 1.0433 Swiss francs from 1.0503 Swiss francs, hitting a record low of 1.0410 francs, according to Dow Jones’ Interbank foreign exchange rates.
The two “carry-trade currencies” tend to trade inversely to the market.
Carry traders borrow currencies from countries with low interest rates and investing the funds in higher-yielding assets, such as the New Zealand dollar and euro.
The 15-nation currency’s looming ascent has some of the United States’ large trading partners in Europe considering their options, and drawing two very different reactions: alarm from the French, equanimity from the Germans.
Germany’s manufacturing giants are keeping an eye on the record-high euro, but are also planning for the future, devising strategies to mitigate the effect of the strong currency on their bottom lines.
In France, the concern is more palpable, with politicians calling for the European Central Bank to intervene to put the brakes on the euro’s surge. Budget minister Eric Woerth this week called the “very high” euro “a handicap for our exports.”
Planemaker Airbus has groused that for every 10 euro cents the common currency gains against the dollar, the company will lose as much as 1 billion euros ($1.5 billion). Given that the euro has risen from $1.4726 on Jan. 2 to above $1.52, the cost to Airbus would be 500 million euros ($758.4 million) so far this year.
The euro zone’s biggest companies, and some midsized ones, too, all practice currency hedging, which entails purchasing financial contracts on the open market to lock in exchange rates to avoid any pitfalls in the event of big swings.
In other late New York trading, the British pound fell to $1.9883 from $1.9926, while the dollar rose to 98.32 Canadian cents from 97.45 Canadian cents.
The dollar’s decline has also boosted oil prices, which is denominated in the U.S. currency. Oil hit a record $103.05 last night in Asia.