US Dollar Hits New Low Against Euro in More Than Two Years

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Last updated at: (Beijing Time) Sunday, June 30, 2002

US Dollar Hits New Low Against Euro in More Than Two Years

The US dollar, after rising sharply in value for years in a reflection of economic might in the United States, hit the lowest point against the euro Friday inmore than two years despite of the intervention by the Bank of Japan that strengthened the dollar.

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The U.S. dollar, after rising sharply in value for years in a reflection of economic might in the United States, hit the lowest point against the euro Friday inmore than two years despite of the intervention by the Bank of Japan that strengthened the dollar.

In Frankfurt, the euro peaked at 99.90 U.S. cents Friday beforereceding to 99.18 cents at the close of the trading day, the highest point since the beginning of its rally in April. In late New York trading, the euro was quoted at 99.18 cents, up from 98.89 cents late Thursday.

The euro reached 1.18 dollars after it was launched in January,1999, and it then slid to its record low of 82.3 U.S. cents in October 2000. It was last above parity -- one euro to the U.S. dollar -- in February 2000. Since January, the dollar has lost more than 8 percent of its value against other major currencies after rising 33 percent since the mid-1990s.

Why is the euro almost on parity with the dollar while the U.S.economy is recovering from the first recession in the 21st century?

Analyst said the dollar's decline appears to have been driven mainly by concerns among investors that the U.S. economy is not bouncing back as strongly as expected from last year's recession.

Although the U.S. economy grew at an annual rate of 6.1 percentin the first quarter of this year, many economists believe the pace in the second quarter would be much slower. The uncertainty of the economy in the coming months including the danger of new terrorist attacks against the U.S. resulted in the continued slip of the dollar.

The U.S. Federal Reserve has also kept the short-term interest rate stable in the first half of this year out of concerns of slowrecovery of the economy.

Doubts about corporate profits are another factor pushing the value of the dollar down the slope. Revelations that Xerox Corp., one of the biggest copier makers in the world, might have artificially inflated revenue in the 1997-2001 period by as much as 6 billion dollars helped send the dollar tumbling Friday. Earlier this week, a similar accounting scandal surrounding WorldCom also weighted the U.S. dollar down.

Meanwhile, the devaluation of the U.S. dollar also resulted from the "two deficits" in the U.S. economy -- huge deficits of the budget and foreign trade.

The U.S. government was running a deficit of 147.1 billion dollars for the first eight months of the fiscal year of 2002 beginning October 1, 2001. The budget deficit could rise well above the 100 billion dollars mark in the current fiscal year, according to the U.S. Congressional Budget Office.

The deficit in 2002 would end a string of four straight years of budget surpluses in the country and is one of the major reasonswhich led to the decline of dollar.

The U.S. Commerce Department reported earlier this month that the trade deficit reached a record high of 35.9 billion dollars inApril, 3.4 billion dollars more than the 32.5 billion dollars in March.

A broader measure of the international financial standing -- the current account balance, which measures investment flows as well as trade in goods and services -- also posted a record deficit of 112.5 billion dollars for the first quarter. The recordtrade deficit also contributed to the decline of the dollar.

Americans, particularly the manufacturers in the country, are now happy to see the decline of the dollars as it will help U.S. companies to export more goods to other countries.

The U.S. government also wants to allow the currency to slide as it would be helpful in improving the outlook for the economy byboosting U.S. export. However, a very sharp decline would induce both foreign and U.S. investors to get out of U.S. financial assets and it would be harmful to the U.S. economy in the long run.

People are probably going to see a substantial decline in the U.S. dollar over the next 12 months, some U.S. economists said.

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