Associated Press | The euro sank to just above a 4-year low against the dollar Friday as
economic data suggested a stronger recovery in the U.S. while the cost
and economic fallout of an emergency financing deal for indebted
European countries hurt the shared European currency.
The euro, which is used by 16 countries, slid to a 19-month low of
$1.2359 in midday trading in New York. That’s more than 2 cents off its
high from the day. A break below $1.2328 would mean the euro was
trading at its lowest point in more than 4 years.
The emergency financing deal sealed last weekend initially pushed the euro above $1.30. However, concerns over the cost to European countries, which must raise the emergency debt, and the pain expected from required “austerity” meaures on stagnant or shrinking economies have weighed on the currency in the days since then.
Greece, Spain and Portugal are raising taxes and cutting government spending to get their debt in order. That could halt their recoveries from the global recession and weigh on growth in Germany and France.
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The European Central Bank is now also more likely to be one of the last central banks of the major economies to raise interest rates, analysts say. Raising rates tends to increase the value of a currency.
“People are still very worried about longer term solvency issues for euro,” said David Gilmore of Foreign Exchange Analytics in Essex, Conn. “They see the austerity measures dragging European growth down and keeping the ECB very accomodative for an indefinite period.”
In an interview published Friday, European Central Bank President Jean-Claude Trichet dismissed suggestions that the bank’s decision to buy government bonds of indebted countries, part of the nearly $1 trillion aid deal, might stoke inflation. Higher inflation decreases the value of a currency. It can also prompt central banks to raise rates.
“The euro is in a no-win situation at this point,” wrote currency strategists from Brown Brothers Harriman in a research note.
The common currency has tumbled 15.5 percent this year.
While Europe struggles, U.S. data continues to suggest a strenghtening recovery from the recession. The government on Friday said that retail sales rose in April for the seventh month in a row, while factory production increased last month.
Growing demand for goods in the U.S. will likely lead employers to hire more in the second half of the year, said Brian Bethune of research firm IHS Global Insight.
Other European currencies slid. The British pound fell to $1.4545 on Friday from $1.4643 late Thursday, while the dollar rose to 1.1305 Swiss francs from 1.1147 francs.
The dollar was higher across the board versus emerging market currencies in Latin America and Asia where investors sought safety in the U.S. currency. It also gained versus the Nordic currencies and the Canadian, New Zealand and Australian dollars.
The dollar fell to 91.89 Japanese yen from 92.84 yen. The low-yielding yen is also considered a safe-haven purchase.
