LONDON, Nov 20: The dollar plunged to another historic low point against the euro on Tuesday, as the greenback was plagued by concerns over the US economy amid a global credit squeeze, dealers said.
The European single currency leapt as high as $1.4814 -- the highest level since the euro’s creation in 1999 -- as it also drew strength from favourable interest rate differentials, they added.
The euro later pulled back to stand at $1.4803, which compared with $1.4665 in New York late on Monday.Earlier on Tuesday, the US currency began plumbing fresh record euro lows after more bad news from the banking sector hit investor confidence over the American economy.
“When concerns over the economy grow, you turn to stable currencies -- for example the dollar, but ultimately the dollar is going down so now you would buy the euro,” said Neil Mellor, currency strategist at Bank of New York.
Dealers absorbed news on Tuesday that US housing starts rebounded 3 per cent in October after falling sharply in the prior month, according to a US government survey.
However, the report showed building permits, a sign of future construction activity, fell 6.6 per cent to a weaker-than-expected annual pace of 1.178 million.
Despite the rebound in starts, the US housing market remains under pressure. Starts have fallen 16.4 per cent from October of 2006 as property sales have slowed and home foreclosures have surged.
“The huge overhang of homes for sale, high cancellation rates and concern about impending foreclosures has left builders cutting production,” said Lehman Brothers analyst Michelle Meyer.
Elsewhere, the dollar fell heavily against other major rivals, including sterling and the Swiss franc, as a slew of negative reports in the banking sector shook investor optimism.
Goldman Sachs on Monday urged clients to sell shares in US banking peer Citigroup, citing an expected $15 billion write-down in its next fiscal quarter owing to its exposure to the subprime mortgage crisis.
Goldman also downgraded the number two US home-improvement retailer Lowe’s on fears over further deterioration in the housing market, causing concern that consumption could be slowing.
“We are currently in the midst of a second wave of the sub-prime crisis kicked off in mid-October by large bank write-downs and expectations of further write-downs in the current quarter,” added ABN Amro economist Greg Gibbs.
Market players also had their eyes turned to minutes of the October meeting of the Federal Open Market Committee (FOMC), due for release on Tuesday, to look for clues on the Fed’s rate move next month.
The US central bank cut rates twice since September in an attempt to appease distressed financial markets and prevent the US economy from stalling, but the outlook has been muddled by sturdy inflation.
On Tuesday, the market was also gripped by rumours of an advance meeting of the FOMC.
