Dollar hits new low after ECB rate call
LONDON (AFP) — The dollar extended its losses against the euro on Thursday, tumbling to another record low after the European Central Bank left its rates unchanged and said fighting inflation was a priority.
In mid afternoon European trade, the euro jumped to 1.5373 dollars, beating the previous record set on Wednesday of 1.53 dollars. It later stood at 1.5367 dollars.
The ECB cut its forecasts for growth and increased its forecasts for inflation, but bank president Jean-Claude Trichet said keeping inflation down in the medium term was "our primary objective."
This indicated that the ECB would not cut rates soon, meaning the gap between European and US interest rates was set to widen as the Federal Reserve continues to reduce its rates, analysts said.
"Mr Trichet does not sound like a Central Banker who may be about to cut interest rates," said an analyst at CIBC bank, Audrey Childe-Freeman.
The Federal Reserve is expected to continue to cut its rates, which have fallen by 225 basis points since September. The trend will undermine the value of the dollar against the euro and other currencies with higher yields.
Thomas Stolper, an analyst at Goldman Sachs, said the idea that lower interest rates might not be enough to bolster growth was also beginning to gain ground, further pressuring the US unit.
Elsewhere, the price of gold hit a new high within striking distance of the symbolic 1,000-dollar an ounce level and the pound rose back above 2.0 dollars for the first time this year after the Bank of England held its rates steady.
The dollar has been hit by a stream of weak economic data in the fallout of the collapse of the US housing market. The euro has been on a record breaking run for weeks, topping 1.50 dollars on February 26.
The US Federal Reserve is expected to cut its benchmark rate at a March 18 meeting from the current 3.0 percent.
Against the Japanese currency, the dollar fell to 103.22 yen compared with 104.05 yen late in New York on Wednesday.
In Britain, the Bank of England on Thursday froze its key lending rate at 5.25 percent, with analysts saying inflation risks had persuaded the bank not to cut borrowing costs again.
The announcement was in line with market expectations for no change and followed quarter-point cuts in February and December that came amid growing concerns over the risk of a sharp slowdown in economic activity.
The price of gold surged to another all-time peak in London, hitting 992.05 dollars per ounce, with trade driven by the weak dollar.
In Europe on Thursday, the euro changed hands at 1.5367 dollars against 1.5268 late on Wednesday, at 158.62 yen (158.86), 0.7667 pounds (0.7661) and 1.5819 Swiss francs (1.5823).
The dollar stood at 103.22 yen (104.05) and 1.0295 Swiss francs (1.0362).
The pound was at 2.0043 dollars (1.9925).
