Dollar Weakens Against Euro

The dollar today hit a new low against the euro, with analysts expecting the American currency to drop through the psychologically important $1.30 level.

As concerns grew about the enormous US current account deficit - the difference between America's import and export of goods and services - the dollar fell as low as $1.29 to the euro in morning trading.

The weakening dollar against the euro is bound to fuel concern about the eurozone's recovery, which has been dependent on exports to the US. The euro is up about 5% against the dollar from just a month ago.

"The US has a current account deficit, a budget deficit and a president who appears unconcerned about dollar weakness," said Shahab Jalinoos, a senior currency strategist at ABN Amro. "No one can see any reason to buy the dollar at the moment."

The latest weakening of the greenback began last Wednesday amid scepticism that George Bush, who has won another four years in the White House, will do much to tame the towering US deficits.

The US budget deficit is about $427bn, or 3.7% of gross domestic product, while its current account - the broadest measure of trade - widened to a record $166.1bn in the second quarter.

The dollar weakened today despite Friday's upbeat US jobs report, evidence of how seriously the markets view the imbalances in the US economy.

"The market's moves since Friday confirm that the market is focusing on structural problems rather than cyclical improvements in the US economy," said Kikuko Takeda, market analyst at Bank of Tokyo-Mitsubishi in Tokyo.

Top central bankers meeting in Basel, Switzerland, said yesterday they were keeping a wary eye on currencies, but Japanese and eurozone policymakers were not expected to step into the market to stop the dollar's fall for the time being.

The dollar is showing weakness against a wide range of currencies - down to a 12-year low against the Canadian dollar and at its lowest levels for several months against the pound and the Japanese yen.

Some respite for the dollar could come this week, when the US Federal Reserve is expected to raise interest rates by 25 basis points. If the US central bank indicates it will raise rates again in December, that could boost the dollar, as higher rates could attract more foreign capital to the US.