Dollar sinks to new low against euro

NEW YORK -- The dollar sank to new depths against the euro and slipped to its worst level in 11 years against the British pound Monday after a Federal Reserve official said the risk of a dollar crisis was "quite low."

U.S. policymakers have indicated little interest in talking up the dollar, and the comment over the weekend by Federal Reserve governor Ben Bernanke seemed to indicate that the government would not intervene to prop up the sliding greenback.

"This was the latest selling excuse," said David Gilmore, partner at Foreign Exchange Analytics, based in Essex, Conn. "For markets making money selling the dollar, it remains a good reason for remaining in that mode."

Europe's 12-nation currency reached $1.2681 in New York trading before easing to $1.2669 late in the session. The British pound hit $1.8077, the first time the pound rose above $1.80 since September 1992.

The dollar, weighed down by worries over the U.S. trade deficit and the surging budget deficit, has dropped about 5 percent against the euro in the past month. Lower U.S. interest rates compared to those in Europe and fear of terrorist attacks have also contributed to the euro's rise.

But some expect that a dollar rebound after weak year-end trading will help strengthen the U.S. currency.

"What we saw over the holidays was to be expected," said Christoph Mueller of Germany's DZ Bank. "But I expect that there will be a sharp correction in the future."

William Dudley, chief U.S. economist at Goldman Sachs in New York, said what comes out of the G-7 meeting in early February will be important in setting the tone for the currency markets.

"Our forecast for the dollar is 1.30 against the euro -- which isn't that far away," he said.

Like their counterparts in the United States, European officials haven't objected much to the euro's rise. Despite fears that the strength in the common European currency would undermine exports from the region -- especially Germany, the euro zone's powerhouse -- recent data have showed a rise in export growth.

While European companies that depend on exports to the United States are suffering from the high euro, they are coping better than expected, said Andre Schwarz, a spokesman for Germany's Association for Exporters and Foreign Trade.

"The situation is not so dramatic," he said, noting that demand for European goods remains strong.

Dudley, meanwhile, noted that given the U.S. administration's reluctance to intervene in the currency markets, China's decision about pegging the yuan to a basket of currencies rather than the dollar may be important.

"That is a wild card and it is important as it will affect the dollar's relationship with all Asian currencies," he said.

Contributing: Melissa Eddy

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