AP
Dollar Falls Again, Euro Zone Divided
Friday February 29, 4:37 pm ET
By Matt Moore, AP Business Writer
Dollar Drops to New Lows, Spurring Some Concerns in Europe About Jobs, Exports


BERLIN (AP) -- The dollar kept spiraling down Friday, hitting another low against the euro and dropping to a three-year record against the yen, as worries about the U.S. economy depress the currency and raise thorny issues in Europe about how to cope with the growing gap.

The euro flew past its previous high to hit $1.5238, before subsiding to $1.5194 late in New York. The euro topped $1.50 this week for the first time since being introduced in 1999 at $1.17, then surged above $1.51 after markets took comments from Fed Chairman Ben Bernanke as a sign that yet more U.S. rate cuts are on the way.

"The dollar looks set to finish the month with yet more downside pressure being heaped upon it," said Gary Thomson of CMC Markets in London.

The dollar also slumped to 103.96 Japanese yen on Friday from 105.36 yen in New York the night before. The dollar has not been below 104 yen since March 2005.

The dollar also fell to 1.0433 Swiss francs from 1.0503 Swiss francs, hitting a record low of 1.0410 francs, according to Dow Jones' Interbank foreign exchange rates.

The two "carry-trade currencies" tend to trade inversely to the market. The Dow Jones industrial average dropped more than 300 points in late trading in New York.

Carry trader borrow currencies from countries with low interest rates and investing the funds in higher-yielding assets, such as the New Zealand dollar and the euro.

The 15-nation currency's looming ascent has some of the United States' large trading partners in Europe considering their options, and drawing two very different reactions: alarm from the French, equanimity from the Germans.

Germany's manufacturing giants are keeping an eye on the record-high euro, but are also planning for the future, devising new strategies to mitigate the effect of the strong currency on their bottom line.

In France the concern is more palpable, with politicians calling for the European Central Bank to intervene to put the brakes on the euro's surge. Budget minister Eric Woerth this week called the "very high" euro "a handicap for our exports."

Planemaker Airbus has groused that for every 10 euro cents the common currency gains against the dollar, the company will lose as much as 1 billion euros ($1.5 billion) -- and that adds up. Given that the euro has risen from $1.4726 on Jan. 2 to above $1.52, the cost to Airbus would be 500 million euros ($758.4 million) so far this year.

The euro zone's biggest companies, and some midsized ones, too, all practice currency hedging, which entails purchasing financial contracts on the open market to lock in exchange rates to avoid any pitfalls in the event of big swings.

Automaker BMW AG -- which employs 4,700 people at its plant near Spartanburg, S.C., where it produces the X5 SUV and the Z4 Roadster -- announced this week it would cut another 5,600 jobs in Germany as part of its cost-cutting efforts. It said it could not rule out more if the euro keeps climbing.

And Volkswagen, AG, Europe's biggest automaker in terms of sales, has said it is looking at building a new plant in the U.S. or elsewhere -- in part to avoid the high costs of the euro. Similarly, Porsche AG and Daimler AG are looking at new plants in countries not tied to the euro or the dollar, in places like India and China, to reduce costs and avoid the problems linked to the dollar's decline across many main currencies.

In other late New York trading, the British pound fell to $1.9883 from $1.9926, while the dollar rose to 98.32 Canadian cents from 97.45 Canadian cents.

The dollar's decline has also boosted oil prices, which is denominated in the U.S. currency. Oil hit a record $103.05 last night in Asia.

Gold prices have shot up as well, settling at $975 an ounce in New York after surging to a record $978.50 an ounce. Investors fleeing the volatility of markets and a slumping dollar have been investing in the precious metal.