The lowering of interest rates in the U.S. and doubts about the health of the world’s largest economy over the past week have pushed the value of the green currency to a new low against the euro, with losses also recorded against other leading international currencies.
The euro exchange rate late Wednesday on the foreign exchange markets reached as high as 1.4504 dollars at one point – a new all-time high. The week closed at 1.4502 dollars, an increase of 0.8 percent compared to the previous week.
At the same time, the British pound strengthened by 1.8 percent, to 2.0893 dollars. The Swiss franc jumped by 0.7 percent, to 1.1538 francs per dollar. However, the American currency strengthened against the Japanese currency by 0.5 percent, to 114.84 yen.
The U.S. Federal Reserve on Wednesday lowered key interest rates from 4.75 to 4.5 percent, in line with expectations, indicating in an official statement that the next such move might not occur until 2008. This indication only briefly supported the dollar as doubts about the health of the U.S. economy and financial sector soon flared up again.
These doubts were fueled by the prestigious financial daily Wall Street Journal, reporting that brokerage firm Merrill Lynch was making deals with hedge funds to delay the announcement of losses on securities backed by mortgages.
"We are witnessing economic weakness in the U.S. and weakness in financial institutions," concluded Geoffrey Yu from Swiss UBS.
"We are witnessing economic weakness in the U.S. and weakness in financial institutions. Therefore, investors are shifting capital abroad and trying to profit from growth in emerging markets. There are still reasons to withdraw from the U.S. and sell dollars," concluded Geoffrey Yu from Swiss UBS.
Among other significant developments, it is worth noting that the pound drew support from unexpectedly strong growth in real estate prices in the UK, which led investors to conclude that there may not be a need for the Bank of England to lower key interest rates to support the growth of the British economy in the short term. Its exchange rate reached the highest level against the dollar in the past 26 years at 2.0660 dollars per pound during the week.
Meanwhile, the Swedish central bank announced on Tuesday that it would raise key interest rates from 3.75 to 4.00 percent, confirming analysts’ expectations. The Bank of Japan, on the other hand, decided to keep key interest rates at the current level of 0.5 percent. It also lowered its forecasts for economic growth and inflation, which caused the yen to depreciate against major currencies. The euro thus reached 166.6 yen. (Hina)
