FRANKFURT, GERMANY: The euro soared to its highest level ever against the dollar on Thursday, trading above $1.40 (Rs55.86)for the first time since the currency was introduced in 1999.
Breaking that barrier has long been viewed by analysts and markets as a key turning point in solidifying the euro’s position in global currency markets, and will provide more impetus for it to be the reserve currency of choice, a position long held by the now-weakening dollar, which has been battered by a recent half-percent cut in US interest rates.
The 13-nation euro bought as much as $1.4064 in morning trading in Europe before falling slightly to $1.4040, above its previous high Wednesday night of $1.3987, and more than the $1.3964 it bought in late New York trading.
David Jones, chief market analyst at CMC Markets in London, said the euro’s rise is not likely to abate in the coming days, particularly later Thursday when traders wait to hear what US Federal Reserve chairman Ben Bernanke and US Treasury Secretary Henry Paulson say about the US mortgage market in testimony before the US Congress. Bernanke could use the forum as a way to fine-tune the US central bank’s economic outlook, after the larger-than-expected half-point cut in the benchmark interest rate.
“I am sure we’re going to see buyers moving in for the next target,” Jones said, adding that he believes the euro will rise to $1.42 soon.
“People are using any weakness as a buying opportunity for euros,” he said.
Howard Archer, chief UK and European economist at Global Insight, said, “$1.45 is a serious possibility before the end of the year,” due to the spectre of more US cuts.
The euro’s latest surge has come after the Fed lowered its key interest rate to 4.75% from 5.25% as it tries to keep the US economy on track despite market turbulence from the subprime lending crisis.
The European Central Bank kept its key rate unchanged at 4% earlier this month, and the Bank of England meeting next month is expected to keep its rate unchanged at 5.75%.
Melissa Eddy in Berlin contributed to this report.