Dollar Hits New Lows Against Euro, Yen

The U.S. dollar dropped to a new record Thursday against the euro (search) and its lowest level in nearly five years against the Japanese yen (search) amid uncertainty about whether officials would intervene to curb the currency's slide.

The euro rose to US$1.3383 in European trading. It first hit US$1.3360 in New York overnight, then US$1.3363 in morning trading in Tokyo. The previous record, US$1.3335, was set Tuesday.

The dollar bought 102.16 yen in European trading, near the four-and-half year low of 102.11 it hit last week.

The tumble in the dollar followed a brief respite in its fall against major currencies, and investors said it was driven by the belief that U.S. and European officials would do little to stem its decline.

Japanese Finance Minister Sadakazu Tanigaki called the dollar's dip below 102 yen "rather rapid," and vaguely hinted at possible coordinated intervention among Japanese, European and American officials.

"We are always in close contact with authorities overseeing the euro and the dollar," Tanigaki said.

The decline of the U.S. currency is a global concern, since it makes exports to the United States more expensive, while reducing earnings when they are shipped back to their home countries.

A low dollar has been good for U.S. exports by making American products cheaper abroad, but makes life more expensive for Americans living overseas. The U.S. military announced this week that it would give troops posted in Europe a 31 percent increase in their cost of living adjustments to help offset their loss of spending power.

The euro has shot up from about US$1.20 in September over continued concerns about the U.S. trade and budget deficits and signals from the Bush administration that it would not step in to stem the tide.

European Central Bank (search) President Jean-Claude Trichet (search) has called the euro's steep climb "brutal" and "unwelcome," and traders were watching for a signal from him Thursday after the bank's monthly interest rate meeting.

The 12-nation euro initially fell against the dollar after its 1999 debut, but it has risen about 60 percent since bottoming out at 82 U.S. cents in October 2000.

The Japanese yen, British pound and other currencies have also been making dramatic gains on the dollar as corporations and long-term investors seek to diversify their assets now that sentiment has turned against the U.S. currency, said HSBC economist Mark Austin in London.

The British pound was as high as US$1.9438, levels it has not seen since at least 1992, when it was ejected from the European exchange rate mechanism.

The dollar weakness came despite reports from Washington on Wednesday that the U.S. economy is gaining momentum, bolstered by home building, shipping and manufacturing.

"I think the major flow that's moving the euro and dollar in general is not a speculative one," Austin said. "It's not being driven by short-term traders ... and it's a pretty widespread dollar weakness that's going on, it's not just euro strength."

Hiroshi Watanabe, Japan's vice finance minister for international affairs, said Wednesday that Japanese officials were ready to "take action" if needed. He said Tokyo was in close contact with European authorities.

Tanigaki, however, said early Thursday that those comments did not necessarily mean joint intervention was in the cards.

Austin said banks would be wary of intervening — because the dollar's slide is not being fueled by short-term speculation, it could have the effect of simply giving those diversifying for the long term a better price and doing little to halt the downward spiral.

"The risk for central banks is that intervention will prove to be ineffective," Austin said.

He said the best prediction now is that the euro will hit US$1.35 by the end of the year, with the yen hitting 100 to the dollar.