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US economic data sink dollar against euro, Brazilian real

US economic data sink dollar against euro, Brazilian real

Three disheartening economic reports released Tuesday sank the dollar to a record low against the euro.
The dollar also hit floating-era lows against the Brazilian real and New Zealand dollar, or "kiwi."
The 15-nation euro leaped to $1.4982 before settling at $1.4967, its previous record, in late New York trading. On Monday, the euro was worth $1.4825. The euro's previous high of $1.4967 was set on Nov. 23.
The New York-based Conference Board said its Consumer Confidence Index fell to 75 in February from 87.3 in January, the index's lowest level since February 2003. The reading was below analysts' expectations.
Meanwhile, the Labor Department reported that wholesale inflation rose by 1 percent in January, more than analysts estimated. The price index was driven higher by soaring oil and food costs.
"It's the cumulative effect of negative economic reports," said David Gilmore, a partner at Foreign Exchange Analytics in Essex, Connecticut. "The U.S. economy is either in recession or heading into recession."
Federal Reserve Vice Chairman Donald Kohn was "somewhat dismissive of inflation and focused on the greater near-term risk to growth," in his comments today, said Gilmore. His comments may be a preview to Chairman Ben Bernanke's Congressional testimony Wednesday, which is expected to signal more rate-cut easing to come from the Fed.
Meanwhile, the European Central Bank is expected to hold rates steady.
"That juxtaposition is not good for the dollar," said Gilmore.
Lower interest rates can jump-start a nation's economy, but may weigh on its currency as traders transfer funds to countries where they can earn higher returns.
Lastly, Standard & Poor's reported that U.S. home prices fell 8.9 percent in the last three months of 2007 from a year earlier. It is the sharpest drop in the S&P/Case-Shiller quarterly index's history.
The British pound soard to $1.9862 from $1.9667 late Monday, while the dollar fell to 107.26 Japanese yen from 108.07 yen.
The dollar fell to a floating-era record of 1.6805 Brazilian reals, according to Gilmore. It rose to settle at 1.6857 Brazilian reals, he said, its highest close since the real was floated in May 1999. Brazil's benchmark interest rate, at 11.25 percent, offers investors high yields.
Meanwhile, the New Zealand dollar soared to a second high in as many days of 81.58 U.S. cents per kiwi, according to Dow Jones' Interbank foreign-exchange rates. The kiwi settled at 81.53 U.S. cents from 81.01 U.S. cents on Monday, when it set its previous high of 81.15 U.S. cents.
It is the kiwi's highest level since it began trading freely against the dollar in 1985. The New Zealand currency has benefited from soaring prices of its commodities and a high interest rate of 8.25 percent, as has Brazil's real.
The real and kiwi are beneficiaries of the carry trade, which involves borrowing currencies from countries with low interest rates, such as Japan, and investing the funds in higher-yielding assets elsewhere. Carry-trade beneficiaries are often the euro and currencies of countries with high interest rates.
In other New York trading, the dollar fell to 1.0759 Swiss francs from 1.0889 Swiss francs. The dollar also slumped to 98 Canadian cents from 99.72 Canadian cents.


Updated : 2021-05-18 16:49 GMT+08:00