Dollar declines to record against euro for fourth day

Tuesday, Dec. 28, 2004 | 11:14 a.m.

BLOOMBERG NEWS

The dollar fell to a record against the euro for a fourth straight trading day on speculation European and U.S. officials will tolerate further declines in the U.S. currency.

Strategists including Meg Browne at Brown Brothers Harriman & Co. say the dollar probably needs to weaken further to help shrink the record deficit in the U.S. current account, the broadest measure of a nation's trade. The dollar is headed for its third straight year of losses against both the yen and euro.

"The perception is that the U.S. administration is not going to do anything to prevent the slide of the dollar, which is one way of dealing with the record current-account deficit," said Browne, who used to work at the Federal Reserve and is based in New York. She predicted the dollar will trade at $1.36 per euro in three months.

The U.S. currency dropped to an all-time low of $1.3644 per euro and was at $1.3619 at 1:01 p.m. in New York, from $1.3617 late yesterday, according to electronic currency-trading system EBS. The dollar has lost 35 percent against the almost six-year- old euro since the start of 2002. For the year, it's fallen 7.6 percent versus the euro and 3.9 percent against the yen.

Financial markets in London, the biggest center of global currency trading, were closed for a second day, reducing the level of trading from the typical $1.9 trillion daily average.

The dollar failed to maintain an advance after a survey showed U.S. consumer confidence rose this month, while Italian confidence sank, underscoring the pessimistic outlook on the U.S. currency, said Robert Lynch, a currency strategist at BNP Paribas. The Conference Board said its U.S. confidence index climbed to 102.3, the highest since July, from 92.6.

"Obviously sentiment is quite bearish" on the dollar, said Lynch, who is based in New York. "I'm not sure what there is to hold it back" for the time being, he said of the euro.

For European officials including Belgian Finance Minister Didier Reynders, the stronger euro has benefits in addition to its potential to slow the region's exports. Euro gains have cushioned Europe against higher prices for oil, which is priced in dollars, Reynders said, L'Echo newspaper reported Monday. Crude oil is up 28 percent this year.

Reynders still joined European policy makers including European Central Bank President Jean-Claude Trichet in urging the U.S. to halt the dollar's decline. The U.S. "must take steps" to stop the drop, he told L'Echo.

"The dollar will suffer because no one believes the ECB will act at these levels," said Niels From, senior currency strategist in Copenhagen at Danske Bank, the second-largest Nordic lender.

Italian business confidence fell to a nine-month low in December as a stronger euro made manufacturers pessimistic about exports driving a recovery in Europe's fourth-biggest economy, a survey from Rome-based Isae institute showed today.

Ketchup maker H.J. Heinz Co. is among U.S. companies saying it benefited from a weaker dollar. The company said the dollar's drop boosted revenue in its second quarter.

The shortfall in the U.S. current account widened to a record $164.7 billion last quarter, meaning the U.S. needs to attract $1.8 billion in foreign money each day to keep the dollar from dropping.

The yen traded close to a three-week high against the dollar and was poised for its longest streak of gains in a decade after Japan's industrial production gained and unemployment declined, adding to evidence the world's second-largest economy will expand for a fourth year.