Dollar declines to record against euro

Mark Tannenbaum and Jonas Bergman

Monday, Dec. 27, 2004 | 11:19 a.m.

The dollar declined past $1.36 per euro for the first time, reaching a record low for the seventh time this month, on speculation the U.S. and Europe will allow the currency to drop.

Record U.S. budget and trade deficits have deterred foreign investors, pushing the dollar to its third straight annual loss against the euro and yen. The U.S. currency has fallen 7.5 percent this year versus the euro and 3.8 percent against the yen. A weaker dollar may spur U.S. exports and crimp imports.

"We're still biased toward a weaker dollar," said Todd Elmer, a currency strategist in New York at Barclays Capital Inc., a unit of Britain's third-largest bank. As for U.S. officials, "it's quite clear they're following a policy of benign neglect," while in Europe, "we're not yet at that pain threshold" where they'll ramp up efforts to curtail euro gains.

The U.S. currency has lost 8.6 percent this quarter against the euro and 6.2 percent against the yen, making it the worst performer among 16 major currencies.

Trading was about half the regular $1.9 trillion per day, magnifying moves, said Russell LaScala, head currency spot trader in New York at Deutsche Bank AG. Markets were shut in the U.K., the biggest center of currency trading, as well as in Canada and Australia. Pre-set dollar sell orders above $1.3550 per euro deepened the dollar's losses, LaScala said.

The currencies of Indonesia, Thailand and India dropped against the dollar on concern an earthquake yesterday near the Indonesian island of Sumatra will slow economic growth. The quake caused tsunamis that killed at least 22,000.

"The dollar is in for more of the same," said Callum Henderson, head of global currency strategy at Standard Chartered Plc in Singapore. "The likelihood is the European Central Bank will let the euro run up at least a bit more, and the U.S. has no interest in doing anything about the dollar."

European policy makers, including European Central Bank President Jean-Claude Trichet, this month urged the U.S. to halt the dollar's decline. Belgian Finance Minister Didier Reynders called on the U.S. to reduce its budget and trade gaps to reverse the dollar's slide, L'Echo reported today.

"Without wanting to set a level for the euro, it seems abnormal to me that the euro zone is supporting American imbalances to this extent," Reynders told the newspaper. "The U.S. must take steps."

H.J. Heinz Co. is among U.S. companies saying it benefited from a weaker dollar. The world's biggest ketchup maker said the dollar's decline boosted foreign revenue in its second quarter.

The Bush administration is the only one that hasn't bought or sold dollars to affect currencies since the end of the Bretton Woods system of fixed exchange rates three decades ago. The ECB hasn't sold euros since the 12-nation currency began trading in January 1999. It bought euros along with the Federal Reserve and other major central banks in September 2000. The U.S. hasn't entered currency markets since.

International investors increased their holdings of U.S. assets in October by $48.1 billion, the smallest gain in a year, the Treasury Department said this month.

"There are massive deficits in the U.S. and policy makers there don't care that the dollar is slumping," said Jens Peter Soerensen, chief analyst at Danske Bank A/S.