- The U.S. dollar slumped to a new all-time low Wednesday
against the euro, which briefly rose above $1.30 for the first time after
data showed the U.S. trade deficit above $50 billion in September for the
fourth straight month.
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- The euro briefly rose to $1.3007 after the trade figures
were released, breaking its two-day-old record of $1.2987 before dropping
back beneath $1.30. The dollar's recent drop against the 12-nation European
currency's recent rally has been fueled by persistent worries over high
oil prices and the U.S. trade and budget deficits.
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- Wednesday's spike came despite a drop in the trade deficit
to $51.6 billion in September, which beat most forecasts, and the fact
that the exports posted their best month on record.
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- "The market is as the market does," said David
Bloom, a currency strategist at HSBC Bank PLC in London. "Everyone
tried to test the options barriers to see if it would keep going and it
didn't - you can have moments of madness in any market but it's come back
to its senses."
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- The euro, launched in 1999, languished under $1.00 for
about 2 1/2 years between 2000 and mid-2002. It is now 57 percent above
its all-time low against the dollar of 82 cents, reached in October 2000.
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- The latest rally has taken the euro from about $1.20
two months ago to today's level prompting European Central Bank President
Jean-Claude Trichet to call the surge "brutal" earlier this week.
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- The general feeling now is that the currency will remain
around the current level, before beginning a more gradual rise next year,
said Carsten Fritsch, an economist at Commerzbank in Frankfurt.
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- "I think for a lasting break of this $1.30 we will
need some fresh disappointing news from the United States," he said.
"Our focus is $1.35 by mid-next year and $1.32 by the end of the first
quarter."
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- Bloom forecast a euro level of $1.35 within the next
six months.
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- For the 12 countries that use the euro, the stronger
currency raises fears that it will snuff out their moderate, export-driven
economic recovery by making exports more expensive. But it takes much of
the sting out of high oil prices on the continent, since oil is priced
in dollars and the strong euro makes it relatively cheaper.
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- For Americans, consequences include higher prices on
imported goods and more expensive European vacations. But a weak dollar
can be a boon to U.S. manufacturing exporters, making their goods cheaper
compared to those of European competitors, and fattening overseas sales
and profit margins.
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- Although the Bush administration says it has a strong
dollar policy, most analysts think the White House doesn't mind a lower
dollar because that can help U.S. economic growth and jobs.
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- Experts say that as the slide of the dollar continues,
international money managers and foreign central banks will be less likely
to buy U.S. stocks and bonds.
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- "The U.S. has got these massive deficits that nobody
wants to buy into," Bloom said. "It needs everybody to be buying
dollars all day, every day, and the world doesn't want to do that."
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- http://www.forbes.com/home/feeds/ap/2004/11/10/ap1646885.html
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