Sticker Shock: Euro Hits New High

U.S. dollar slips against Euro AP

The euro soared to its highest-ever level against the dollar on Thursday, trading above $1.40 for the first time since the currency was introduced in 1999.

Breaking that barrier has long been viewed by analysts and markets as a key turning point in solidifying the euro's position in global currency markets, and will provide more impetus for it to be the reserve currency of choice - a position long held by the now-weakening U.S. dollar.

The 13-nation euro bought as much as $1.4064 in morning trading in Europe before falling back slightly to $1.4035, above its previous high Wednesday night of $1.3987, and more than the $1.3964 it bought in late New York trading.

David Jones, chief market analyst at CMC Markets in London, said the euro's rise is not likely to abate in the coming days, particularly later Thursday when traders wait to hear what U.S. Federal Reserve Chairman Ben Bernanke and U.S. Treasury Secretary Henry Paulson say about the U.S. mortgage market in testimony before the U.S. Congress.

Bernanke could use the forum as a way to fine-tune the U.S. central bank's economic outlook, after a larger-than-expected half-point cut in the benchmark interest rate earlier this week.

"I am sure we're going to see buyers moving in for the next target," Jones said, adding that he believes the euro will rise to $1.42 very soon.

"If not this week, it could be next week," he said. "People are using any weakness as a buying opportunity for euros."

The rising euro has yet to cause great consternation among most of the 13 nations that use the common currency, save for France, which has criticized its increase. As the euro rises it could dampen exports, particularly to the United States, making European-made products from automobiles to consumer appliances more expensive for American buyers.

On Thursday, Germany's finance ministry said the euro's strength meant that export growth in Europe's biggest economy had lost some of its vigor.

"The dynamism of exports is noticeably weaker than last year," the ministry said in its September monthly bulletin, citing the euro's appreciation against the dollar as a reason.

The euro's latest surge has come after the Fed lowered its key interest rate to 4.75 percent from 5.25 percent as it tries to keep the U.S. economy on track despite market turbulence from the subprime lending crisis. Most analysts had expected a quarter-point cut.

Lower interest rates, while used to jump-start the economy, can also weaken a currency by giving investors less return on investments denominated in the currency.

The European Central Bank kept its key rate unchanged at 4 percent earlier this month, backing off a planned increase in light of the subprime crisis and market volatility. Analysts are mixed on whether the bank will lift the rate in October.

The dollar also fell against other currencies, dipping against the British pound to $2.0073 compared with $2.0025 late Wednesday, after U.K. retail sales in August rose by 0.6 percent from July.

The dollar slipped against the Japanese currency to 115.62 yen from 116.09 late Wednesday.

By Business Writer Matt Moore; the AP's Melissa Eddy in Berlin contributed to this report.
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