Dollar at Near Record Low Vs. Euro

FRANKFURT, Germany -- The dollar gave up more ground to the euro, which climbed to within one cent of its all-time high, and the pound neared $2 Monday. Movement against the dollar could drive up the price of exports and tighten the pinch for travelers to Europe just as the tourist season approaches.

Supported by crackling economic growth, falling jobless figures and interest rates much lower than those in Britain and the United States, the 13-nation euro bought $1.3549 by afternoon in Europe after climbing as high as $1.3576 -- its highest point since January 2005 and near its record of $1.3667 from December 2004.

Kristian Siggaard-Jensen, a foreign exchange strategist with Saxo Bank in Copenhagen, Denmark, said markets had factored in the increases, noting the steady guidance by the European Central Bank and the Bank of England.

"People have been expecting this sort of volatility ... to pick up for some time," he said.

The British pound rose to $1.9938, a 14-year high, on unexpectedly higher prices for manufactured goods and news that the sizzling housing market was not cooling off. Analysts said they expected the currency to cross the $2 mark this week. It later fell back to $1.9920, still less than a penny off of $2 barrier. That compared with $1.9870 on Friday in New York.

"Clearly many are eyeing a test of the key $2 level, something that hasn't been seen since 1992," said David Jones, chief market analyst for CMC Markets in London.

The dollar rose to 119.54 Japanese yen from 119.06 yen late Friday after officials from the Group of Seven wealthiest nations did not press Japan to raise its own interest rates to buoy its currency at a weekend meeting.

The euro has charged higher against the dollar in recent months as the region's economy improves and jobless figures decline. The high level has drawn some criticism in the past because leads to higher export prices. Germany, Europe's largest economy, is highly dependent on exports.

But unlike previous highs, the clamor of politicians has been decidedly muted given the strong export growth, the strength of European economies and the belief that a higher euro won't hurt sales abroad right now.

"The tenor of European rhetoric at the G-7 was surprising, and on the face of it, positive, as it's always good to see a lack of equivocation on the part of central bankers," Siggaard-Jensen said of last weekend's meeting of G7 officials in Washington.

"Secondly, there was a clear sense that while a strong euro is bad for exports, its a great inflation-fighter for the euro zone. That's especially true in an environment of high oil prices, which are dollar-denominated. All in all, surprising and refreshing rhetoric from the Europeans."

Italian Prime Minister Romano Prodi told reporters in Tokyo early Monday that the euro had risen too high, but tempered that by saying the growth had helped Italian and euro-zone business and industrial growth.

"We have already reached extremely elevated levels," Prodi told the Italian news agency ANSA. He added that the euro's strength had jolted big industry out of a period of laziness and promoted a decisive "increase in productivity."

The ECB held its benchmark rate steady at 3.75 percent last week, but set the scene for an increase to 4 percent in June. That would be aimed at countering threats of inflation in the euro zone, a bloc of 317 million people that accounts for more than 15 percent of the world's global domestic product.

Higher interest rates, used to combat inflation, can bolster a currency by making certain types of investments more attractive.

"The fundamentals are in line to go higher and the politicians seem to be welcoming that," Siggaard-Jensen said. "The investors are more confident, too, and realize 'We can take euro/dollar above the all-time highs without getting too much (government) intervention."

Worries about the U.S. trade and budget deficits were a key factor in the euro's surge to its all-time high in 2004, but those worries were submerged over the past two years by the Federal Reserve's campaign of interest rate increases. The Fed has left rates unchanged over recent months, with markets watching U.S. data closely for pointers as to the Fed's course.

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