Dollar slumps to record low beyond $1.50 to euro

Dollar slumps to record low beyond $1.50 to euro By Naomi Tajitsu Reuters Wednesday, February 27, 2008; 12:46 AM TOKYO (Reuters) - The dollar hit a record low beyond $1.50 to the euro on Wednesday after surprisingly weak U.S. data and comments by the Federal Reserve's No. 2 official reinforced views that the central bank will keep cutting interest rates. The dollar also hit an all-time low against a basket of currencies after reports showing U.S. consumer sentiment hit a five-year low and consumer expectations slumped to the worst in 17 years, offering more proof the economy may be in a recession. Fed Vice Chairman Donald Kohn on Tuesday said that a weak economy was a bigger worry than inflation risks, suggesting a willingness to keep cutting rates from 3 percent as the central bank tackles "difficult times." The euro initially jumped after a strong reading of German corporate sentiment cooled expectations that the European Central Bank could cut interest rates in the near term from 4 percent. "We've just gone through a major psychological level, so the market is considering where the euro's next ceiling will be," said Hideaki Inoue, a forex manager at Mitsubishi UFJ Trust and Banking. The euro surged to $1.5050 on electronic platform EBS, hitting its highest since the single currency was introduced in 1999. The rise above $1.5000 triggered an array of automatic buy orders, traders said. With the euro having broken into unchartered territory, traders said the market would focus on levels like $1.5100 and $1.5150 where more such buy orders are likely located. The euro was up 0.1 percent from late U.S. trade at $1.4994 Traders said the single currency also got a lift as market players in Asia were forced to cover short positions created when the euro fell under $1.45 earlier this month. The dollar index, which tracks its performance against six major currencies, slid to a record low 74.509 and was last down 0.1 percent at 74.655 The New Zealand dollar jumped to a 23-year peak of $0.8186 before pulling back to $0.8156 The dollar hit a record low of 1.0705 Swiss francs while sterling climbed to a one-month high of $1.9892 The U.S. currency fell 0.2 percent against the yen to 107.04 yen Market participants said that despite the dollar's beating against other currencies, traders were wary of picking up the yen because stock market gains may encourage risk taking and carry trades. The rebound in stocks from their lows in January has helped revive risk appetite, prompting investors to fund purchases of high-yielding currencies like the Australian and New Zealand dollars with funds borrowed in the low-yielding yen. Euro gains against the dollar pushed the single European currency to a six-week high of 161.43 yen before pulling back to around 160.50 yen down around 0.1 percent on the day. "I am not sure whether it should be called a revival of the carry trade, but currencies that are easy to buy are those from resource-producing countries. The same is true for Europe, when compared with the currencies of the United States and Japan," said a trader for a Japanese trust bank. BERNANKE MAY BE KEY Euro-zone rates are set to widen their advantage over those in the United States, helping the single currency to maintain its rate advantage over the dollar. Traders said that expectations of more Fed rate cuts were bound to further injure the U.S. currency, and the only question was how many more Fed rate cuts are in store. The Fed is expected to slash rates by a half point in March to 2.5 percent. Market players are looking ahead to comments from Fed Chairman Ben Bernanke, who delivers the central bank's twice-yearly monetary policy testimony to Congress. "A climb to $1.51 on dovish comments from Bernanke is very possible," said a trader at a U.S. brokerage in Tokyo. (Additional reporting by Masayuki Kitano)