Wall St. and Business Wednesdays: Dollar Hits New Lows on Economic Data by Tali Arbel
The dollar fell to a new record low against the euro and a 26-year low against the British pound Tuesday after lower-than-expected consumer confidence data was released and ahead of Wednesday's Federal Reserve interest rate decision.
The dollar slid against the euro throughout the afternoon, as the euro peaked at $1.4440, the latest in a string of all-time highs against the dollar, before settling at $1.4434. The euro had finished at $1.4424 in New York late Monday, the same day it hit its last record of $1.4438.
The pound rose to $2.0679 in late New York trading Tuesday — a level last seen in 1981, when Diana married Prince Charles and Margaret Thatcher was prime minister.
The British currency was powered by expectations that the Bank of England will keep its benchmark interest rate at 5.75 percent next week. The pound had finished at $2.0619 in New York late Monday.
The Canadian dollar hit a new 47-year high of $1.0510 Tuesday, according to Dow Jones' Interbank foreign exchange rates, before settling at $1.0488, down from $1.0495 in late New York trading Monday. The U.S. dollar bought 95.35 Canadian cents.
The Canadian dollar is a commodity-backed currency, benefiting when prices of its exports rise. Canada is a major producer of oil, and crude prices have risen 35 percent since August, hitting a string of record highs.
The euro and the Canadian dollar have been climbing steadily against the dollar, regularly touching new highs since August amid fears over the health of the U.S. economy — worries stoked by the subprime credit crisis and disappointing economic reports — and rising oil prices.
Tuesday saw the release of more disheartening economic data, as the Conference Board reported that its Consumer Confidence Index fell to 95.6 — its lowest level since October 2005 — from a revised 99.5 in September. It is the index's third consecutive monthly drop and signals consumers' insecurities over the economy and their jobs.
Other critical economic reports scheduled for the rest of week include an advance report on gross domestic product and the releases of figures on third-quarter manufacturing activity and October employment.
Markets expect the U.S. Federal Reserve to cut its key interest rate from its current level of 4.75 percent Wednesday — adding to an unexpectedly bold half-point cut last month.
Although lower interest rates can jump-start an economy, they can weaken a currency as investors transfer funds to countries where their deposits and fixed-income investments bring higher returns. Higher rates can boost a currency.
"The weakening of the dollar today came after the consumer confidence numbers came in. The market's focusing more on economic data and what its implications are for December rather than tomorrow's rate cut," said Bob Sinche, head of global foreign exchange strategy at Bank of America Corp., adding that investors have already priced in a 25-basis point cut for October, and the dollar probably would not react strongly to tomorrow's rate cut announcement.
The decline of the dollar makes U.S. exports cheaper abroad, which could boost corporate earnings and may increase tourism at home. However, prices of foreign-made goods, such as French wine and Canadian maple syrup.
In other trading, the dollar rose slightly against the Japanese currency to 114.77 yen from 114.59 yen, but fell against the Swiss franc to 1.1600, from 1.1651 Swiss francs late Monday.
Copyright © 2007 The Associated Press. All rights reserved.
Wednesday, October 31, 2007
To discuss this article further enter The Deeper Look Dialogue Room
The views and opinions expressed herein by the author do not necessarily represent the opinions or position of BlackElectorate.com or Black Electorate Communications.