Dollar: How Low Can It Go?

The Taipei Times
Oct 21, 2007

The weakened US dollar tumbled further on Friday on foreign exchange markets, sinking to another record low against the euro, as G7 finance chiefs met for talks in Washington.

The G7 finance ministers and central bank chiefs did not spell out a specific course of action. Rather, they sought to strike a confident tone that they are on top of the situation. Finance officials also said they will seek to learn the causes and lessons from the turmoil.

At 9pm GMT, the euro was swapping hands at US$1.4301, up from US$1.4297 late on Thursday. The euro had earlier surged to a record US$1.4319.

The dollar meanwhile fell sharply against the Japanese currency, dropping to ?114.53 from ?115.62 a day earlier.

The dollar has been undermined by mounting expectations that the US central bank will be again forced to cut borrowing costs.

The US Federal Reserve slashed its key interest rate last month by half a percentage point to 4.75 percent amid financial market turmoil and a lingering housing market downturn.

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

US Treasury Secretary Henry Paulson has voiced confidence in a “strong dollar” in the past week, but the currency has declined sharply in the past year, falling by over 13 percent against the euro.

And many analysts expect the dollar’s fortunes to dwindle further in coming weeks, but that could trigger thorny problems for policy makers in other countries, particuarly the eurozone where exporters are becoming concerned about the euro’s strength.

Concerns are also mounting in the US that the dollar’s fall could spark inflation risks for the world’s largest economy as it makes foreign goods and products more expensive for Americans to buy.

The greenback’s value also dipped against the Canadian dollar, as the Canadian currency climbed as high as US$1.0381, marking its highest level against the US dollar in 33 years, before settling at US$1.0345.

Some analysts said a coordinated action by the G7 was unlikely because the strength of the euro reflected the good health of the eurozone economies.

In late New York trading, the dollar stood at 1.1660 Swiss francs, down from SF1.1693. The pound rose to US$2.0514 from US$2.0444.