Euro Reaches New High Against Dollar

(AP)  The euro climbed to a record high of $1.5070 in midmorning European trading on Wednesday as sentiment increased that the U.S. Federal Reserve would continue its rate cut campaign.

The 15-nation currency hit a series of highs, culminating in $1.5071 before 10 a.m. (0400 Eastern) before falling back slightly to $1.5063, nearly a full cent more than the $1.4967 it bought in late trading in New York on Tuesday, which was equal to the last record high it had reached, back in November.

In other trading, the British pound soared to $1.9941 from $1.9862 late Tuesday, while the dollar fell to 106.40 Japanese yen from 107.26 yen.

Along with the rise in the British pound, which is nearing $2 again, the surging euro will not be kind to Americans visiting Europe - they'll have to pay more for hotel rooms in Rome, entrance fees at the Louvre and chocolates in Belgium.

On the other hand, the stronger euro makes shopping trips to the U.S. more appealing to Europeans.

A higher euro also makes goods from the euro-zone more expensive for customers abroad, or cuts into manufacturers' profits if they try to keep the U.S. dollar price of products constant.

Howard Archer, the chief UK and European economist for Global Insight, said the euro's strength is not likely to weaken anytime soon, given that any "worsening in U.S. interest-rate differentials dilutes a key support for the dollar."

He also said that weaker growth prospects in the United States, coupled with its deficit will "exert a significant downward influence" in the long term and cause some countries to shift more of their reserves from dollars to other currencies, including the euro.

"In addition, there is the very real possibility that several countries could switch a proportion of their foreign currency reserves out of U.S. dollars over time," he said.

Gary Thomson, an analyst with CMC Markets in London, said the euro surged because markets are looking for clues from Fed Chairman Ben Bernanke about more rate cuts in the U.S. when he addresses lawmakers there later in the day.

"Inflation - or perhaps more to the point stagflation - remains a concern for the Fed as seen with yesterday's PPI data and as a result now that the most significant of psychological levels since parity has gone, we could see further downside pressures emerging for the greenback," he said, referring to a string of disappointing economic reports out of the U.S. on Tuesday.

Those reports included the New York-based Conference Board's Consumer Confidence Index, which fell to 75 in February from 87.3 in January, its lowest level since February 2003. Meanwhile, the U.S. Labor Department reported that wholesale inflation rose by 1 percent in January - more than analysts estimated - on rising oil and food costs. Finally, Standard & Poor's reported that U.S. home prices fell 8.9 percent in the last three months of 2007 from a year earlier, its sharpest drop ever.

Those reports, along with remarks by Federal Reserve Vice Chairman Donald Kohn that appeared to diminish inflationary concerns and focused instead on greater near-term risk to growth were seen as a clue that Bernanke is expected to signal more rate cuts.

But, at the same time, the European Central Bank, which has left its own rates unchanged since last summer, is expected to keep them at 4 percent when it meets next week.

Lower interest rates can jump-start a nation's economy, but may weigh on its currency as traders transfer funds to countries where they can earn higher returns.

[sjc_1]

If you look at the 10 year treasury bond, it is around 3.5% or so. This tells me that people are still buying them at that rate. If there is open market action to buy bonds by the Fed then the U.S. dollar could lose even more value.

[mk4711]

It''s off-topic, but one more word on wal mart''s failure in Germany - quote:
Wal-Mart''s biggest strength is competing on price, but because local German stores Aldi and Lidl were able to deliver good quality grocery at very affordable prices, Wal-Mart could never compete. Aldi and Lidl promoted weekly sales and heavily discounted merchandise, which drew the customers back to it. Wal-Mart opened all the stores in the suburbs and customers were very reluctant to drive that far for grocery. With the local shops providing better rates, customers had no need to drive to the suburbs. People were not even comfortable with the idea of the hypermarket. http://www.thehindubusinessline.com/catalyst/2006/12/14/stories/2006121400070200.htm

[mk4711]

It''s off-topic, but one more word on wal mart''s failure in Germany - quote:
Wal-Mart''s biggest strength is competing on price, but because local German stores Aldi and Lidl were able to deliver good quality grocery at very affordable prices, Wal-Mart could never compete. Aldi and Lidl promoted weekly sales and heavily discounted merchandise, which drew the customers back to it. Wal-Mart opened all the stores in the suburbs and customers were very reluctant to drive that far for grocery. With the local shops providing better rates, customers had no need to drive to the suburbs. People were not even comfortable with the idea of the hypermarket. http://www.thehindubusinessline.com/catalyst/2006/12/14/stories/2006121400070200.htm

[peacedreamer-2009]

I think the US has to stop relying on the profitability of large corporations and start encouraging millions of small businesses. You go to countries were the economy is strong, and it''s built on mom and pop, not on greedy corps. Mom and pop pay their taxes, greedy corps avoid taxes. Mom and pop shop locally, greedy corps send the money to some distant HQ where the money is dispersed to who knows where. If the US were smart, it would open a floodgate of micro loans and encourage small business.

[mk4711]

About wal mart''s failure - quote: After almost nine years in Germany, Wal-Mart seemingly could not win over German customers, who are very price-focused. Although Wal-Mart offers "everyday low prices", it found that its German competitors offered just as low of a price on many items, putting it on a level playing field with the Wal-Mart stores in the area. In addition, some of Wal-Mart''s signature offerings like smiling employees, baggers at checkout and stores outside of town centers proved unfavorable to the standard German consumer. http://www.bloggingstocks.com/2006/07/28/wal-mart-to-sell-85-stores-in-germany-and-exit-country/

[mk4711]

About wal mart''s failure - quote: After almost nine years in Germany, Wal-Mart seemingly could not win over German customers, who are very price-focused. Although Wal-Mart offers "everyday low prices", it found that its German competitors offered just as low of a price on many items, putting it on a level playing field with the Wal-Mart stores in the area. In addition, some of Wal-Mart''s signature offerings like smiling employees, baggers at checkout and stores outside of town centers proved unfavorable to the standard German consumer. http://www.bloggingstocks.com/2006/07/28/wal-mart-to-sell-85-stores-in-germany-and-exit-country/

[dredre2k]

SH*%, and i''m headed to France on Friday.
The dollar is WORTHLESS! Maybe we should start using Euro''s here...
This is a longshot, but methinks that the Fed is intentionally allowing the dollar to devalue so that the Amero can take its place. Haven''t heard of it? Google it... it''s a proposed currency for US, Canada and Mexico. Will function similar to the Euro.

[davidlar2]

We can only blame ourselves. We want the federal reserve bank to cut interest rates to make mortgages cheap. We want the government to expand services and want to tax other people or no one at all to pay for them (or future generations). If we keep voting for clowns like the people we have in Congress who generate huge deficits on pork and who then appoint other clowns like Bernanke to run the Federal Reserve Bank, this is what we get.

As a country we need to realize that there is no free lunch- we need to afford and pay for what we have, not use unrealistic amounts of borrowed money and not expect tax redistributions from the rich in an even more progressive tax structure.

[omega39-2009]

On the other hand Wal Mart failed in Germany because they couldn''''t compete with local retailers.
Posted by mk4711 at

Walmart has a well documented history of selling items below cost to destroy the competition (especially mom & pop stores), you must have some regulatory agency that isn''t run by a lobbyist whose only credentials are that he opposed the very regulatory agency he is now head of.

[rudy654-2009]

Wal Mart failed in Germany because they couldn''''t compete with local retailers. Too much competition. Posted by mk4711 at 02:58 PM

We don''t believe in competition in the US, we believe in corporate monopolies and corporate welfare, but not competition. Good for Germany!