Euro breaches 1.42 dollars for first time

Euro breaches 1.42 dollars for first time
(AFP)28 September 2007

LONDON - The euro surged above 1.42 dollars for the first time in its short history here on Friday amid the prospect of further cuts to US interest rates, dealers said.


The euro reached 1.4208 dollars in afternoon London trade, the highest level since creation of the European single currency in 1999.

At about 1300 GMT, the euro was trading at 1.4203 dollars, compared with 1.4150 in New York late on Thursday.

The dollar slumped to a fresh low despite US data out Friday showing that consumer spending rose 0.6 percent in August as Americans shrugged off credit and housing market turmoil.

The Commerce Department report was better than the 0.4 percent rise expected by Wall Street analysts and showed that a key driver of US economic activity remained strong.

Personal income however rose a more modest 0.3 percent, slightly below expectations of a 0.4 percent gain.

Weak US housing data appeared to offset any good news.

“Dollar weakness remains a dominant theme after yesterday’s (Thursday’s) far worse than expected US new home sales data suggested once again that we would see further rate cuts from the Fed as the year progresses,” said James Hughes, an analyst for CMC Markets.

Cuts to US interest rates is making euro investments more desirable to many investors.

On Thursday, US economic growth for the second quarter was revised downward from 4.0 percent to 3.8 percent.

Sales of new US homes meanwhile plunged to their lowest level in seven years in August, and median sales prices made their sharpest drop in 37 years.

“The weak housing data confirmed in people’s minds that the Fed is going to ease interest rates,” said Tim Condon, head of research at ING Financial Markets in Singapore.

“While a rate cut is bullish for the equities and fixed-income markets in the US, unfortunately it is bearish for the US dollar,” said Condon.

Market players were looking ahead to second-quarter corporate earnings to be released next week as well as a key monthly US jobs report as they weigh prospects for further interest rate cuts by the US Federal Reserve.

“Traders are focusing on the employment report next week, which would give clues to the Fed’s policy decision next month,” said Yoshifumi Suzuki, a forex dealer at Hachijuni Bank.

The market widely expects the Fed to cut its key rate again at a two-day meeting beginning October 31, after it slashed rates by 50 basis points to 4.75 percent earlier this month, dealers said.