A rising euro raises the cost of European goods in the U.S.
LONDON: The dollar slid to a 14-month low against the euro on Wednesday as investor appetite for risk increased following upbeat comments from Intel Corp. and after a top Federal Reserve official indicated U.S. interest rates would likely remain low for a quite a while.
By early afternoon London time, the euro was trading 0.3 per cent higher at $1.4896, just down on the 14-month high of $1.4913 it hit earlier in the session.
Meanwhile, the dollar was 0.5 per cent lower against the Japanese currency at 89.20 yen.
As usual since the financial crisis became most acute just over a year ago, the dollar has been sold off heavily as stock markets have rallied strongly, and faltered more ahead of what was expected to be a strong opening on Wall Street following further signs of an economic recovery in China and optimistic statements from Intel, the world’s largest chip maker.
Dollar investments such as U.S. Treasuries are seen a safe haven in times of anxiety. But as doubts fade, money moves out of dollars and into riskier and potentially more profitable investments such as stocks and commodities, sending the dollar’s exchange rate down.
Further undermining the dollar were comments from the U.S. Federal Reserve’s Vice Chairman Donald Kohn.
In a speech in St. Louis, Kohn hinted that interest rates in the U.S. — currently the benchmark federal funds rate stands at an all-time low of between 0-0.25 per cent — would remain low for an extended period and that a “V-shaped recovery is not the most likely outcome.”
The U.S. currency, which has been falling for the best part of eight years, has been under particular pressure in recent weeks amid growing talk about its future as the world’s reserve currency.
The dollar’s ongoing falls against many of the world’s leading currencies, with the notable exception of many of Asia’s currencies, which are effectively pegged to the dollar by governments in the region, is beginning to cause mounting concerns in the capitals around the world if the rising rhetoric is any guide Japan’s senior vice finance minister Naoki Minezaki said dollar weakness was likely to persist, while Canada’s Prime Minister Stephen Harper voiced his concern about the rise in the Canadian dollar. And New Zealand’s finance minister Bill English said the Kiwi dollar’s ongoing strength raised questions over the recovery. European governments worry that a rising euro will choke off the fledgling economic recovery in the 16 countries that use the euro. — AP