The U.S. dollar slid to a new low Wednesday against the euro, which rose to $1.3170 — breaking a day-old record as jittery markets kept up pressure on the U.S. currency.
The recent rally has taken the euro from $1.20 about two months ago, driven by concerns over the U.S. trade and budget deficits, which sent it above the $1.31 mark for the first time when it hit $1.3105 on Tuesday.
The renewed surge over the past two days comes after a weekend meeting of the finance officials from the Group of 20 industrial and developing countries didn’t signal concerted action to stop the euro’s rise .
The spike has made American products less expensive overseas, but European leaders have begun to worry openly that it might damage their fragile export-driven economic recovery.
After the European currency broke the record Wednesday, Chancellor Gerhard Schroeder told German parliament that “the euro absolutely concerns me, because of our exports.”
The strong euro puts pressure on manufacturers of products like German luxury cars or French wines, whose dollar prices either have to go up or the companies have to live with lower profit margins.
Germany’s economic growth slowed sharply in the third quarter as exports slipped, with gross domestic product growing by 0.1 percent over the previous three months after two previous quarters of 0.4 percent growth.
The euro’s current spike appears to be driven more by anti-dollar feeling in the markets than any one event, making it hard to say how long it will continue, said Dorothea Huttanus, an economist with DZ Bank in Frankfurt.
“There is nothing really fundamental, it’s bad dollar sentiment,” she said. “Nobody knows how long this can last until we get a sharp reversal.”
Many analysts are predicting the euro will hit $1.40 by the middle of next year, if not higher. European Central Bank President Jean-Claude Trichet recently called the rapid increase “brutal.”
Still, in the short term, Huttanus said she expected the increase to slow.
“I’m convinced that we will have a reversal, because trends as steep as these can’t often continue,” she said.
Introduced in 1999 as the common currency for 12 European countries, the euro initially dropped against the dollar but has risen some 60 percent since hitting an all-time low of 82 cents in October 2000.
Huttanus said, however, that she expected finance leaders would try more verbal warnings before intervening in the currency markets.
“We have to see a lot more verbal intervention — Trichet talking about the euro rise being brutal — and only if these verbal interventions have no impact will we have real market intervention,” she said.