Euro dives against the dollar, threatening U.S. exports
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The euro currency took a pounding Wednesday, falling to a 10-month low against the dollar, as fresh worries about the European economy sent traders fleeing for the traditional haven of the U.S. greenback.
The dollar’s strength, in turn, is posing a risk to the U.S. economy, because it could hurt what has been a bright spot in the American recovery: improving exports, a new focal point of the Obama administration’s economic policy.
The euro dived to $1.332 in New York from $1.349 on Tuesday, a 1.3% drop that was the biggest one-day decline since mid-December. The currency was worth $1.45 as recently as mid-January.
European leaders, who will hold a summit on Thursday, still are trying to figure out whether and how to help the Greek government in its struggle to avoid a debt default.
Germany and France seem to be punting a bailout to the International Monetary Fund, a move that would do nothing to bolster confidence in the European Union or the euro.
“It is seen as an admission that Europe can’t address its own problems,” currency analysts at Brown Bros. Harriman noted in report Wednesday.
Meanwhile, it didn’t help the mood that Fitch Ratings cut Portugal’s debt rating, although that wasn’t supposed to be a surprise.
One force driving the euro lower (and the dollar higher) Wednesday was that interest rates on U.S. Treasury bonds surged, in part because of weaker-than-expected demand at the Treasury’s auction of $42 billion in new five-year notes. Higher rates tend to make a country’s currency more attractive to traders and investors.
The yield on two-year Treasury notes ended the day at 1.09%, up from 0.96% on Tuesday. By contrast, two-year German government notes were paying 0.97%.
The euro still is above its recent low of about $1.25 reached near the end of 2008 amid the credit-market meltdown. But the lower it goes, it has to be making some U.S. exporters nervous: Every tick down in the euro, and tick higher in the dollar, makes U.S. goods more expensive for European buyers.
Some Wall Street pros last year warned of a dollar crisis in 2010, expecting that the U.S. currency would crumble because of soaring Treasury borrowing and a lack of trust in the American economy’s long-term prospects. Instead, it’s the euro that’s facing a crisis of confidence.
But Brian Dolan, currency strategist at Forex.com, warned against viewing the dollar’s surge as a sign of rising faith in the U.S. economy. For the moment, he said, the buck’s rally is just “an aversion to everything else.”
-- Tom Petruno