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Dollar Hits 20 Month Low Against Euro
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The US dollar fell to a new 20-month low against the euro at the end of Nov 2006. The euro rose as high as $1.3203 (U.S.) — its highest point since March 2005.
The reports were enough to overshadow comments from U.S. Federal Reserve Chairman Ben Bernanke that inflation is “uncomfortably high.” Higher interest rates, a weapon against inflation, tend to strengthen a currency by making investments in that denomination more attractive. However, this the converse is negative, higher interest rates mean less spending/investment (because of less borrowing). Not a good mix to help build consumer confidence.
The Fed's current rate stands at 5.25 per cent, having paused for three months after more than two years of quarter-point hikes. The market is expecting the Fed to hold rates steady for the next two months.
Currency traders are concerned about the lagging housing market's effect on the dollar and the possibility of bad news from employment figures.
A weakening dollar decreases Americans' purchasing power, but it makes U.S. goods cheaper for foreigners, and therefore more competitive in the global market. So we help manufacturers on one hand, but also hurt how much your dollar will buy come Christmas time.
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Nov 29, 2006, 7:23 PM
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