Value of Greenback Slips Against Loonie, Euro
A slight gain the U.S. dollar against the Japanese yen Friday was not enough to convince foreign currency markets that the battered greenback was somehow rejuvenating.
That's because the dollar is hovering at lows against other major currencies.
It tumbled to a new low against the euro, and, for the first time in 30 years, fell beneath the Canadian dollar.
The euro has only been around for five years. But during that time it has climbed from being worth slightly less than a dollar to now hovering around $1.40.
It broke above $1.41 for the first time, and went as high as $1.4119 in morning trading in Europe. The shared currency of the 13-nation euro zone later slipped to $1.4056, below the $1.4076 it bought in late New York trading Thursday.
David Milleker, chief economist at Union Investment bank, said the U.S.'s deficit is part of the long term problem, but not what caused this dollar drop.
"The trigger at the moment is really that we do have those subprime mortgage problems, and the Fed has cut its interest rate," Milleker said, referring to the U.S. Federal Reserve Board. "We don't have this kind of problem in Europe, and the (European Central Bank) is still on a hiking bias."
The dollar rose to 0.9999 Canadian dollars, up from 0.9993 on Thursday when it reached parity for the first time since November 1976.
It also rose slightly to 115.61 Japanese yen from 114.44 yen.
The dollar has fallen this week after the U.S. Federal Reserve cut its benchmark federal funds rate bigger-than-expected half a percentage point to 4.75 percent, a response to turbulence in global financial markets in the wake of the subprime mortgage crisis.
The federal funds rate — charged on overnight loans between banks — was slashed on Tuesday by a half-percentage point to 4.75 percent in hopes of assisting the ailing the housing market and buoying the overall economy. It was the first time in more than four years the Fed cut this rate.
The Fed also cut its discount rate — charged on direct loans to banks — by the same amount to 5.25 percent.
European interest rates are higher than in the U.S., making Europe a more profitable place to invest.
But that's not all good news for Euro economies, said Anton Boerner, head of the German exporters group BGA.
"This will harm our competitiveness on the world market and especially on the American market. So we are fearing that our growth rate will come down in the next year and business will become harder for us," Boerner said. The BGA is the leading organization for the wholesale, foreign trade and service sector in Germany.
Tourist Cherie Jefferies from Orange County, Calif., said she and her friends are adjusting their budget downward along with the dollar.
"We're buying lunches in markets then packing a lunch instead of spending in restaurants," said Jefferies, who is in Germany.
She was visiting the Reichstag, the seat of the German Parliament and one of Berlin's most historical landmarks.
From NPR reports and The Associated Press
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