Dollar Falls in Europe, Canada, Japan
AP Business Writer
The dollar fell Tuesday, hovering near its all-time low against the euro, after the Bank of Canada cut its interest rate by half a percentage point to 3.5 percent and indicated that more trims will be needed to deal with a deteriorating U.S. economy.
The dollar fell to 1.0042 Canadian dollars in late New York trading, from 1.0074 Canadian cents on Monday.
The euro bought $1.5208, up from $1.5192 on Monday after touching a record high of $1.5266. The British pound rose slightly to $1.9859 from $1.9847, while the dollar fell to 103.14 Japanese yen from 103.96 the day before.
Tuesday marked the first time the Canadian bank reduced borrowing costs by a half point since November 2001 _ two months after the Sept. 11 attacks. The central bank said more rate cuts may be required soon, possibly as early as April.
Meanwhile, Australia's central bank raised its key interest rate Tuesday to the highest level in 12 years to combat inflation, bucking the trend among major central banks to cut rates in hopes of stimulating their economies. The Reserve Bank of Australia's lifted the key rate by a quarter point to 7.25 percent.
Michael Woolfolk, senior currency strategist at the Bank of New York, said traders will be looking for indications about future interest rate moves from the European Central Bank on Thursday, when ECB staff economists will also unveil inflation projections for 2009. While the Federal Reserve has cut rates in an attempt to loosen the credit squeeze, the ECB has so far been reluctant to do so over worries about accelerating inflation.
The dollar was battered Monday by another series of weak economic reports from Washington, while speculation has been growing that the Fed might cut rates by as much as three-quarters of a percentage point this month.
While lower interest rates can jump-start a nation's economy, they can weaken its currency as traders transfer funds to countries where they can earn higher returns.
"There's been a lot of pressure on the dollar this week, and we believe it will continue to pull back," Woolfolk said. "But the dollar remains very much out of favor in the current economic environment and will continue to deteriorate over the course of the second quarter of the year."
Meanwhile, the yen's rise has caused concern in Japan. Japan's economy minister, Hiroko Ota, described the dollar's fall as "abnormally rapid."
Since the start of the year, the dollar has fallen more than 7 percent against the yen. That erodes Japanese exporters' overseas earnings and makes their exports more expensive.
In other New York trading, the dollar fell to 1.0363 Swiss francs from 1.0424 Swiss francs.
Copyright © 2008 The Seattle Times Company
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