Euro hits new high against dollar

David Jones, chief market analyst at CMC Markets, said the euro’s rise is not likely to subside in the coming days, particularly as traders wait to hear about US mortgage market in testimony before the US congress later on Thursday.

 

“I am sure we’re going to see buyers moving in for the next target,” Jones said, adding that he believes the euro will rise to $1.42 very soon.

 

“If not this week, it could be next week,” he said. “People are using any weakness as a buying opportunity for euros.”

 

The rising euro has yet to cause concern among most of the 13 nations that use the common currency, except for France, which has criticised its increase.  

 

Euro exports

 

As the euro rises it could dampen exports, particularly to the United States, making European products ranging from automobiles to consumer appliances more expensive for American buyers.

 

On Thursday, Germany‘s finance ministry said the euro’s strength meant that export growth in Europe‘s largest economy had lost some of its vigor.

 

“The dynamism of exports is noticeably weaker than last year,” the ministry said in its September monthly bulletin, citing the euro’s appreciation against the dollar as a reason.

 

The euro’s latest surge has come after the US federal reserve lowered its key interest rate to 4.75 per cent from 5.25 per cent to keep the US economy on track despite market turbulence from the lending crisis in the US.

 

Volatility has gripped financial markets since early August as concerns about high-risk home lending in the United States have prompted investors to reassess their overall risk exposure.

 

Lower interest rates, generally adopted to jump-start the economy, can also weaken a currency by giving investors less return on investments denominated in the currency.

 

Meanwhile the European central bank kept its key rate unchanged at 4 per cent earlier this month, backing off a planned increase in light of the mortgage crisis and market volatility.

 

Analyst views vary on whether the bank will lift the rate in October.