The U.S. dollar sank to a new all-time low against the euro Tuesday amid concerns over the U.S. trade and budget deficits and worse-than-expected U.S. employment data.
The euro rose to a record high of $1.3470 in European trading before easing back to $1.3432 in late New York trading, up from $1.3417 late Monday. The old record was $1.3460, set Friday.
Without consistent, positive U.S. economic data, analysts don’t expect a turnaround for the beleaguered greenback.
“We’ve got some short-term spec guys playing these ranges, but the dollar bulls are still not in the market,” said Nas Nijjar, a foreign exchange trader with CMC Group in New York.
While European finance ministers have voiced their angst over the euro’s rise but U.S. officials have not, leaving traders no reason to reverse the trend.
“Without a concerted push from both the States and Europe, the markets are happy with the U.S. dollar decline,” Nijjar said.
In trading Monday in New York, the dollar had rallied, with the euro dropping to $1.3393, fueled by a joint statement by European Union finance ministers and the European Central bank expressing concern about the recent rapid increase in the euro.
The Bush administration has professed a “strong dollar” policy but has also said it will let market forces set the strength of the currency, and most analysts see the United States content to let the dollar fall because it has been making American exports cheaper.
On the other hand, Europe’s fragile economic recovery is export-driven, and the strong euro has either been making European goods more expensive overseas, or cutting into producers’ profits as they try to hold the prices steady.
The euro, shared by 12 European countries, has shot up from about $1.20 since September.
The ECB “must design its interest rate policies and its intervention policies in such a way that growth in Europe is fostered, rather than the opposite happening,” German Chancellor Gerhard Schroeder said in comments broadcast by n-tv television Tuesday during a visit to China. “I believe it will fulfill its responsibility.”
At the year-end press conference Tuesday of Germany’s central bank, the Bundesbank, bank president Axel Weber reiterated that the rise of the euro is “unwelcome.”
Asked about the possibility of an intervention on the foreign exchange market, Weber said “interventions are a tool that are always available to central banks.”
The comments followed similar comments out of a meeting in Brussels on Monday of EU finance ministers, where Austrian Finance Minister Karl-Heinz Grasser said it was important for Europe “to engage in a serious and intensive debate” with the Bush administration on the weakening dollar.
The comments had only a short-term effect, with markets being driven Tuesday more by U.S. employment data released Friday that showed the weakest jobs gain in five months and just more than half what economists had forecast, said Commerzbank analyst Michael Schubert in Frankfurt.
“I think the market is testing, they don’t believe in these comments from the finance ministers anymore,” Schubert said. “From the market point of view, this employment report is key for the U.S. sustainability of the upswing.”
Even though verbal intervention does not seem to carry weight with traders any more, Schubert said it might still be some time before there is an actual intervention with central banks buying dollars to prop up the currency.
European leaders will likely wait at least until there is good jobs data from the United States before considering such a move, Schubert said.
“Before Friday’s employment data, I would have said it was a good time to step in, but now it’s more difficult because it would work against fundamentals,” Schubert said.
“Intervention works better if it is supported by other factors, and if the other factors aren’t there, I don’t see it being successful.”
The dollar ended mixed against its other major rivals Tuesday. The British pound rose to $1.9459 from $1.9413 late Monday, while the dollar bought 102.84 Japanese yen, down from 103.23; 1.1405 Swiss francs, up from 1.1397; and 1.2075 Canadian dollars, up from 1.1980.