Dollar hits 6-month high vs euro on debt woes in Portugal, Greece; awaits Fed verdict on rates
By APWednesday, January 27, 2010
Dollar hits 6-month high versus euro
NEW YORK — The dollar hit a six-month high against the euro Wednesday after the Federal Reserve said it would hold interest rates at a record low in a range near zero to nurture an economic recovery, while anxiety about public finances in weaker European countries continued.
The 16-nation euro dropped to $1.4038 in late New York trading from $1.4086 late Tuesday. Earlier in the session, it slid as low as $1.3994, its weakest point since July 2009.
The dollar was broadly higher against emerging-market currencies in Asia, Europe and Latin America. But it slipped versus the British pound.
The pound rose to $1.6179 from $1.6147 late Tuesday, while the dollar edged up to 89.90 yen from 89.71.
Low interest rates can weigh on a currency as investors transfer funds to where they could earn higher returns. The U.S. has one of the lowest official interest rates of the major economies. Many emerging-market countries have substantially higher rates.
The Fed said it still expects to end a $1.25 trillion program aimed at driving down mortgage rates as scheduled on March 31. But it reiterated that it remains open to changing that timetable if necessary.
Meanwhile, debt woes in weaker European countries continued to weigh on the euro.
Portugal’s 2010 budget is prompting talk of a credit downgrade, such as those that have hit Greece, according to Ashraf Laidi, an analyst with CMC Markets in London. Portugal’s finance minister said late Tuesday that the budget deficit was expected to have hit 9.3 percent of gross domestic product last year — well above the 3 percent allowed for countries using the euro.
The government’s goal is to bring the deficit to below 3 percent by 2013.
Trading of Portuguese bonds implies doubts over whether Portugal will be able to do that, said Brown Brothers Harriman analyst Marc Chandler.
Meanwhile, Greek bond yields are soaring, suggesting the risk of a default has increased.
President Barack Obama’s State of the Union speech Wednesday evening will also draw attention to see if more moves to curb big banks’ size or trading are proposed. Uncertainty over policy could boost the dollar, Laidi said.
In other trading Wednesday, the dollar rose to 1.0659 Canadian dollars from 1.0605 late Tuesday, and gained to 1.0492 Swiss francs from 1.0459 francs.
Tags: Barack Obama, Dollar, Europe, Greece, New York, North America, Portugal, Union, United States, Western Europe
