Dollar dives to historic euro low ahead of G7 meet

LONDON (AFP) — The ailing US dollar hit another record low versus the euro on Friday as the market fretted over gloomy US economic prospects and G7 finance ministers gathered in Washington, dealers said.

In early European trade, the euro jumped to a record 1.4319 dollars, the highest level since the single currency's creation in 1999.

That was an increase of 14 percent over the past year and 22 percent up on its initial rate of 1.1665 dollars set on December 31, 1998.

In late European deals, it stood at 1.4250 dollars, down from 1.4297 late on Thursday.

The dollar slid to to 114.96 yen, from 115.62 late on Thursday.

The dollar's dwindling value has been thrown into the limelight ahead of the gathering of Group of Seven (G7) finance ministers and central bank chiefs in Washington on Friday which was due to start at 1715 GMT.

US Treasury Secretary Henry Paulson continues to voice confidence in a "strong dollar" but the currency has declined sharply in the past year.

Nervousness about the health of the global economy and the meeting also pushed up the yen, which is often sold by speculators to fund risky "carry trade" investments in high-yielding assets.

Dealers said players were betting that G7 chiefs would refrain from taking any action to try to bolster the sagging dollar despite growing concern in Europe about the strong euro's effect on eurozone exporters.

"There is already some speculation that officials will attempt to prop up the dollar at the G7 finance ministers' meeting," said Julian Jessop of Capital Economics.

"But we expect this meeting to be a non-event for the markets."

In recent years, G7 officials have refrained from any direct signal to impact currencies.

While French and Italian politicians have voiced concerns about the euro's rise, Germany and other eurozone countries appear more relaxed about it.

On the sidelines of a European Union summit meeting in Portugal French President Nicolas Sarkozy said he saw a consensus among EU leaders that some currencies were too weak ahead of the Washington G7 meeting.

"Not everybody considers that the euro is too high but everybody considers that other currencies are too weak," Sarkozy told reporters.

The French president did not specify which currencies he had in mind. Analysts said, however, coordinated action by the G7 was unlikely because the strength of the euro reflected the good health of the eurozone economies.

"The strong euro reflects robust growth in the eurozone, while concerns over the outlook for the US economy grew" after higher than expected weekly jobless claims, said Hiroshi Sakurai, analyst at Mizuho Investors Securities.

The market was also keeping an eye on oil prices, which hit a record high 90.07 dollars per barrel in New York on concerns about tensions between Turkey and Iraq, dealers said.

In recent weeks, the dollar has been undermined by the increased prospect of another US interest rate cut later this month, after the Federal Reserve slashed its key rate last month by a half-point to 4.75 percent.

Lower borrowing costs in the United States reduce interest in the dollar and boost the attractiveness of the euro.

In late European trade Friday, the euro changed hands at 1.4250 dollars, against 1.4297 dollars late Thursday, 163.82 yen (165.32), 0.6963 pounds (0.6992) and 1.6709 Swiss francs (1.6721).

The dollar stood at 114.96 yen (115.62) and 1.1726 Swiss francs (1.1693).

The pound was at 2.0470 dollars (2.0444).

In London, the price of gold slipped to 763.00 dollars per ounce at the evening fixing from 764.15 dollars late Thursday.