Euro up to 8-month highs near $1.40 as dollar tumbles on expected Fed move to boost economy

Euro nears $1.40 amid talk of ‘currency war’

PARIS — The euro hit new eight-month highs against the dollar Thursday as comments by the head of the International Monetary Fund sparked fresh fears of a looming currency war.

The alert from IMF chief Dominique Strauss-Kahn came as governments around the world are trying to gain trade advantage by keeping their currencies from rising and amid increasing U.S. efforts to get China to implement its pledge to let its currency appreciate.

“I take very seriously the threat of a currency war, even a nascent one,” Strauss-Kahn said in an interview published in Friday’s edition of French newspaper Le Monde.

The IMF chief said China’s currency was “at the root of tensions in the world economy that are becoming a threat,” and that China must speed up its currency appreciation “if we want to avoid creating the conditions for a new crisis.”

On Wednesday, U.S. Treasury Secretary Timothy Geithner also stepped up pressure on Beijing to make more progress to let its currency fluctuate. In a speech at the Brookings Institution, Geithner said the United States would make currencies a major topic at international finance meetings this weekend in Washington.

Geithner said the IMF should play a bigger role in monitoring how countries manage their currencies.

“It is not good for the world, for the burden of solving this broader problem, the exchange rate problem, to rest on the shoulders of the United States,” he said.

In a report Wednesday, the IMF said that the global economy will require a balancing act: Countries with huge trade and budget deficits such as the United States will need to boost exports. And countries with big trade surpluses such as China must reduce their dependency on exports and boost domestic demand.

But the U.S. has argued that China has manipulated its currency to gain trade advantages and helped suppress U.S. exports. The undervalued Chinese currency has made Chinese goods cheaper for American consumers. It has also hurt U.S. companies by making their products costlier in China.

Chinese premier Wen Jiabao retorted that letting its currency rise would cost China export-based jobs and could lead to economic and social turmoil.

Meanwhile the euro continued to rise. The 16-nation currency traded at $1.3965 at midday Thursday, up from the $1.3929 it bought in late afternoon trading Wednesday in New York.

The dollar also fell to fresh lows against the Japanese currency, to 82.43 yen from 82.93 yen.

The British pound rose slightly, to $1.5928 from the $1.5896.

Fed members have said they are willing to offer more relief for the struggling U.S. economy. Buying government debt from banks would lower interest rates in the economy, weakening the appeal of dollar assets.