The euro hit its lowest level against the dollar in more than 13 months Monday after economic data painted a rosy picture of the U.S. economy and traders waited to see if the European Central Bank would cut interest rates later this week.
The euro fell as low as $1.1896 in Europe - its lowest point since May 20, 2004, when it dropped to $1.1893 - before recovering slightly to $1.1899. That's compared to $1.1947 in New York late Friday.
The British pound slipped to $1.7591 from $1.7694, while the dollar fell against the Japanese yen, to 111.43 yen from 111.70 yen late Friday after a survey showed Japanese business sentiment improving. The dollar briefly touched a 10-month high of 111.89 yen, dealers said, but met heavy selling from Japanese exporters.
Carsten Fritsch, a currency strategist with Commerzbank, said the euro is facing a dollar buoyed by the interest rate increase last week by the U.S. Federal Reserve and rises in U.S. manufacturing and consumer sentiment indexes.
"The other currencies are under pressure from the dollar," Fritsch said.
Fritsch said comments by France's Christian Noyer, a member of the European Central Bank's governing council, that a country could exit the 12-member euro zone, were also forcing the common currency lower.
"It's caused some further euro selling," Fritsch said.
The ECB, which has held interest rates at 2 percent for two years, meets Thursday amid calls from politicians to lower borrowing costs in order to spur growth in Europe.
Speculation has mounted that the ECB may move to cut interest rates after Sweden's Riksbank unexpectedly cut its own interest rate to 1.5 percent last month. The Bank of England, which also meets this week, has also been holding its key interest rate steady at 4.75 percent, but analysts said it might move to cut that in light of increasingly dour economic data in Britain.
Fritsch said the sterling's drop has been linked to the confusion and uncertainty in the wake of no votes against the EU constitution a month ago by France and the Netherlands, as well as the raft of dull economic figures last week.
The euro surged to an all-time high of $1.3667 at the end of December on worries about the wide U.S. trade and budget deficits. The dollar has since rebounded, as the Federal Reserve has raised interest rates and economists believe more increases will come this year.
Positive economic news and higher interest rates tend to lift the value of a nation's currency.
- Prakash John Nadavallil
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