Euro Soars To New High Against U.S. Dollar

Tuesday, July 10th 2007, 9:47 am
By: News On 6

FRANKFURT, Germany (AP) _ The euro soared through the $1.37 mark for the first time on Tuesday, trading as high as $1.3716 amid concerns about the U.S. housing market.

The 13-nation currency hit the new high before falling back a bit. It was up from the previous record high of $1.3682 it bought on April 27 and above the $1.3623 it bought late Monday in New York.

The dollar's drop came as U.S. stocks fell in early trading as Wall Street nervously awaited a speech from U.S. Federal Reserve Chairman Ben Bernanke and reacting to troubling forecasts from the retailers Home Depot and Sears.

Bernanke is expected to speak on inflation later Tuesday in Massachusetts, and any indication that he believes price pressures are rising could heighten worries about a possible interest rate increase and give the stock market a jolt.

Meanwhile, Home Depot Inc. and Sears Holdings Corp. offered disappointing financial outlooks that raised concerns about whether corporate America's future performance will give stocks the boost investors have been hoping for.

The Fed has left the benchmark rate unchanged for a year now, after two years of constant increases.

That contrasts with the course of the European Central Bank, which is expected to raise its key rate to 4.25 percent in September; and the Bank of England, which last week increased its interest rate to 5.75 percent, a six-year high.

Higher interest rates, a weapon against inflation, can bolster a currency by giving better returns on fixed-income investments.

The euro rose from a low of 82 U.S. cents in October 2000 to the previous high of $1.3682 on concerns over the enormous U.S. trade and budget deficits.

But a string of rate increases by the Fed had helped cushion the decline of the dollar. Higher interest rates, used to combat inflation, can bolster a currency by making certain types of investments more attractive.

The euro began its most recent run against the dollar in June after the European Central Bank lifted its benchmark rate to 4 percent.

An increase would be aimed at countering threats of inflation in the euro zone, a bloc of 317 million people that accounts for more than 15 percent of the world's GDP.

The sudden surge also came after the European Union gave Cyprus and Malta final approval to start using the euro next year, raising to 15 the number of nations sharing the currency.

The two Mediterranean nations to join the currency zone on Jan. 1.

Cyprus and Malta will bring just over 1 million people to the 318 million who now use the euro. Their economies account for 0.2 percent of euro-zone gross domestic product.

The pound, which has been trading around 26-year highs against the dollar, briefly touched $2.0231 before falling back slightly to $2.0221, up from $2.0151 late Monday. The increase came after reports said that gains in British consumer prices are above the Bank of England's target in the past year, but that inflation was dropping back sharply.

The dollar drifted lower against the Japanese currency, drifting to 122.36 from 123.33 yen.