Dollar hits all-time low against euro

NEW YORK (AP) - The dollar plunged to its lowest point ever against the
euro Wednesday amid speculation that the Federal Reserve will soon cut interest
rates and on a warning from the U.S. treasury secretary that turbulence in
financial markets may linger.
The 13-nation euro rose as high as $1.3914 in New York trading -- topping
its previous record of $1.3852 reached July 24. It later fell back to $1.3908,
still up from $1.3832 in New York late Tuesday.
The euro surged after Treasury Secretary Henry Paulson, speaking to
officials from some of the biggest financial firms in the U.S., said volatility
in financial markets will take some time to be resolved, particularly in the
area of subprime mortgages.
"We have been experiencing market turbulence and as I have said for awhile,
it is going to take some time to work its way out," Paulson said at a meeting at
the Treasury Department. "We are going to work our way through this, in some
markets more quickly than others."
The euro's strength threatens to make European exports more expensive, and
therefore less competitive -- although the currency's movements this year have
been gradual rather than abrupt.
The weakening dollar conversely makes U.S. exports more competitive, which
is good news for American manufacturers but means rising prices for imports to
the U.S. The dollar's decline also diminishes the spending power of American
tourists in Europe, while attracting to the U.S. visitors from Europe seeking
cheaper accommodations and shopping.
The dollar, which has hovered within a few cents of its record low over
recent weeks amid the market turmoil caused by the subprime mortgage crisis, had
come under new pressure since the U.S. Labor Department issued unexpectedly poor
August jobs data Friday.
That report strengthened speculation that the Fed will cut interest rates at
its Sept. 18 meeting by as much as half a percentage point. A cut from the
current rate, 5.25 percent, would be the first reduction in four years.
Lower interest rates, used to jump-start the economy, can weaken a currency
by giving investors lower returns on investments denominated in the currency.
"There will be a point when foreign investors won't be as willing to put
money to work in the U.S.," said David Gilmore, a partner at Foreign Exchange
Analytics in Essex, Conn.
Fed Chairman Ben Bernanke offered no hints about the potential for a rate
cut during a speech in Germany on Tuesday.
"The fact no mention of monetary policy was made in yesterday's speech in
Berlin has done little to placate the market, and we're also seeing growing
speculation that the Fed may elect to cut rates by a half a point as they try to
steer the economy away from recession," said James Hughes, a market analyst at
CMC Markets.
The European Central Bank last week put its own two-year run of gradual
interest rate rises on hold but left many economists still expecting a
quarter-point increase from the current 4 percent before the end of the year.
The dollar was lower Wednesday against the British pound, drifting down to
$2.0302 from $2.0317 in New York late Tuesday.
The U.S. currency was lower against the Japanese yen, even as Prime Minister
Shinzo Abe announced that he would resign, putting an end to his troubled
year-old government. The dollar dipped to 114.26 yen from 114.30 yen.
In other trading, the dollar bought 1.0362 Canadian dollars, down from
1.0424 late Tuesday, and 1.1848 Swiss francs, falling from 1.1893.
At Berlin's Brandenburg Gate, American newlyweds Doracy and Russell Harrison
said the unfavorable exchange rate had prompted changes in their plans.
"Accommodation is where you really feel it," said Doracy Harrison, 27, of
Raleigh, N.C., a program manager at an aquatic center.
"We probably wouldn't have come if were weren't staying with friends. We
haven't been as gung-ho about eating out and have planned on low-key cafes
instead of nicer places we'd usually eat."