Dollar soars on European concerns

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Published: February 5,2010

Tags: dollar, global economy, money, public debt, recession

The dollar rose to its highest level against the euro in more than eight months Thursday as concerns over public debt in Europe spread.

The 16-nation euro has been buffeted by mounting concern about the debt loads being carried by several European countries using the shared currency, including Greece, Portugal and Spain.

The dollar is also getting a boost from worries over the strength of the global economic recovery, as it has tended to do ever since the financial crisis began. In the U.S., government data on jobs showed continuing layoffs. Stock markets tumbled around the world, and the Dow Jones industrial average dropped 2 percent in midday trading.

The euro fell as low as $1.3729, its lowest point since late in May 2009 in New York, Thursday morning. In afternoon trading, it fetched $1.3755 from $1.3905 in New York late Wednesday.

Analysts say there’s no telling how far the euro will drop as investors fear debt crises in several European countries.

“There are no heroes picking a bottom to the eurodollar,” said Michael Woolfolk, senior currency strategist at Bank of New York Mellon Corp.

Meanwhile, the British pound dropped to $1.5776 from $1.5901, hitting its lowest point since October 2009, and the dollar sank to 89.19 Japanese yen from 91.04 yen.

The dollar jumped to 1.0726 Canadian dollars from 1.0616, and gained to 1.0659 Swiss francs from 1.0585.

It also made big gains on the Hungarian forint, Brazilian real, Mexican peso and Australian and Canadian dollars.

The weighted dollar index, which compares the U.S. currency to six others, gained to its highest level since last July.

Driving the dollar higher was the huge uncertainty over what would happen with debt-ridden European countries.

Investors are worried about Greece’s ability to stick to promised budget cuts and wide deficits in other countries including Portugal and Spain.

A default by Greece would be a serious blow to the European Union’s monetary union, which requires members to keep their finances under control. The crisis has also sparked speculation that Greece may need a bailout from other EU nations to pay its bills if it can’t make the cuts it is promising or raise the money it needs.

Stock markets sank Thursday in Greece, Portugal and Spain as spreads on government bonds widened.

“We have a real story here, which is the growing global contagion emanating out of the eurozone,” said David Gilmore of Foreign Exchange Analytics in Essex, Conn. The debt problems are exposing weaknesses in the European banking system, which he said had a lot of Greek debt on its books.

Also on Thursday, the European Central Bank and the Bank of England held interest rates at record lows of 1 percent and 0.5 percent, as markets had expected.

Low interest rates can weigh down a currency as investors move funds to others that have higher yields.

The European Central Bank’s president Jean-Claude Trichet said the eurozone economy continued to expand at the start of the year but warned that the recovery would be “uneven” and “uncertain.”

Trichet also said it was the responsibility of every member government to get their borrowing levels under control as escalating debt levels are adding a burden onto monetary policy.

Meanwhile, the Labor Department said Thursday that the number of laid-off workers filing for first-time jobless aid rose by 8,000 to a seasonally adjusted 480,000 last week. That signals jobs are still scarce, tamping down hopes of a labor-market rebound. The government is slated to release employment data on Friday. Economists expect the unemployment rate to have risen to 10.1 percent from 10 percent in December.

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