Tuesday April 22, 06:15 PM
Dollar hit by US housing woes, plunges to record low vs euro
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LONDON (AFP) - The dollar plunged to a record low Tuesday against the euro, which broke through the 1.60-dollar barrier, as the unit was hit by dismal US housing news and fresh fears over the health of the US economy.
The single European currency jumped at one point to 1.6019 dollars, the highest reading since its creation in 1999.
The euro was later trading at 1.5996 dollars against 1.5912 late Monday in New York.
The dollar was at 102.81 yen after 103.19 yen on Monday.
The US currency fell after a report showed that sales of existing US homes fell 2.0 percent in March, underscoring the extended slump in the housing market in the fallout from the subprime home loan crisis.
The National Association of Realtors said the annualized sales pace was 4.93 million, weaker than the 4.95 million expected by Wall Street economists.
The report also showed a 19.3-percent plunge in existing home sales, the largest segment of the housing market.
The data reflected a meltdown in the property market after years of sizzling growth and a speculative bubble.
The boom-and-bust has slammed the entire economy, leading to rising foreclosures and massive losses for banks and threatening to drive the US economy, the world's largest, into recession this year.
Also weighing on the dollar was a comment from the head of the French central bank, Christian Noyer, highlighting the interest rate differential between the United States and the eurozone.
The European Central Bank's benchmark rate, 4.00 percent, is already substantially higher than that of the US Federal Reserve, which stands at 2.25 percent.
Higher interest rates in the eurozone -- and the likelihood that they will not change -- makes the euro a more attractive investment than the dollar.
While the Fed is scrambling to galvanize economic momentum and head of recession by lowering rates, the ECB is focused on curbing inflation -- currently at 3.6 percent in the eurozone -- and has shown no inclination to make credit cheaper.
Noyer, who is also a member of the ECB governing council, said the bank was determined to adjust interest rates with the aim of bringing inflation back down to below 2.0 percent next year.
"We will do what we must for this," he said on RTL radio.
"If necessary, we will change the interest rates (but) for now we are keeping the rate at 4.0 percent because that seems to us to be the appropriate level."
Investors are now looking toward the next Federal Reserve interest rate meeting due on April 29 and 30, when another cut is expected, as well as first-quarter US economic growth figures due out on April 30.
"The few remaining data releases will provide the last clues ahead of next week's (US) rate decision," said Calyon analyst Daragh Maher.
"The relative stability in financial markets means a 25 basis point easing would not be unduly disappointing and would leave the door open to additional easing thereafter, if necessary."
In London on Tuesday, the euro changed hands at 1.5996 dollars against 1.5913 dollars late on Monday, at 164.44 yen (164.24), 0.8011 pounds (0.8034) and 1.6029 Swiss francs (1.6058).
The dollar stood at 102.81 yen (103.19) and 1.0021 Swiss francs (1.0091).
The pound was at 1.9968 dollars (1.9803).
On the London Bullion Market, the price of gold slipped to 918 dollars dollars per ounce from 918.50 dollars late on Monday.
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