updated 12/31/2003 2:34:34 PM ET 2003-12-31T19:34:34

 (AThe dollar continued to tread on a downward path Wednesday as the euro shot above $1.26, notching the latest in a string of record highs against the battered U.S. currency.

Major Market Indices

The 12-nation European currency, which has risen more than 20 percent against the dollar this year, reached $1.2647. It later eased to trade at $1.2606 at midday in New York, still above Tuesday’s $1.2524.

“Fundamentals still require the dollar to fall and a floor on that process has yet to emerge,” said Peter Morici, professor of international business at the University of Maryland.

The release of lower jobless claims figures — the lowest in nearly three years — indicated that America’s businesses are more confident that the economic recovery is genuine. But the news was shrugged off by a market preoccupied with the U.S. budget and trade deficits.

Parul Jain, deputy chief economist at Nomura Securities International. “Late year volatility is simply playing itself out.”

Jain predicted that in the new year, people will realize the U.S. economy is strong, deflationary pressure is easing and the Fed will “probably engage in a rate hike, probably late 2004 or early 2005,” all of which would be supportive of the dollar.

Analysts differed on at what point government intervention is likely.

“Even though U.S. policy-makers have talked of the dollar having an orderly decline, a 15 percent decline in four months can hardly be described as orderly,” said Michael Woolfolk, senior currency strategist at the Bank of New York. “It is unsustainable and requires attention,” he said.

Woolfolk expects verbal intervention on both sides of the Atlantic at the $1.30 level. “If we see 1.30 anytime soon, (Federal Reserve Chairman) Alan Greenspan would wake up in the middle of the night and start making phone calls,” he said.

Others disagree, saying there is no evidence that the movement is disorderly. “The prospect for actual intervention for euro-dollar remains remote at this point,” said Dan Katzive, currency strategist at UBS. “There isn’t any evidence that policy-makers are expressing concern on the movement.”

The British pound reached a new 11-year high of $1.7878 in midday New York trading, up from $1.7787 Tuesday. The dollar bought 107.16 yen, up from 107.06 yen Tuesday.

Other dollar rates compared with late Tuesday: 1.2364 Swiss francs, down from 1.2435; and 1.2928 Canadian dollars, down from 1.3079.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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