The euro rose to record highs and the dollar plummeted to a new low against the European currency at 1.39 The dollar’s attractiveness to global investors diminished amid expectations that the Federal Reserve is to cut interest rates next week. The Euro is at its highest level since the single European currency was launched in 1999.
Some analysts suggest that the expected rate cut by the Fed of half a percentage point has been weighing on the US currency. But the downward pressure on the dollar has continued amid mounting concerns about the U.S. economy. It is feared that banks and other firms with exposure to the riskier US sub-prime market may scale back investments elsewhere. And predictions by US Treasury Secretary Henry Paulson that market turmoil would last longer than the 1998 financial crisis put the dollar under additional pressure.
Support for the euro also came from remarks by European Central Bank President Jean-Claude Trichet that the ECB’s monetary policy remains steady. In addition, eurozone industrial output rose more than expected in July and wage growth also picked up.