Dollar Falls to New Lows Vs. Euro, Pound

Published 12:00 am Monday, December 26, 2005

BERLIN – The dollar fell to new lows against Europe’s 13-nation currency on Wednesday while in London, the pound soared above $2.05 for the first time in more than a quarter of a century.

The dollar was battered by worries about the U.S. economy stemming from the weak housing market.

The euro reached $1.3833 in early European trading _ breaking its previous record of $1.3813 reached in trading on July 13 _ before dropping back to $1.3779 later in the day. that was down from the $1.3784 it bought late Tuesday in New York.

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In London, the pound soared above $2.05 for the first time in 26 years, peaking at $2.0548 before easing back to 2.0491 in afternoon trading. That was marginally higher than $2.0461 late Tuesday.

The most recent high for the British currency was set April 18, when a pound bought $2.0136.

Yet, even as the pound is approaching a 30-year-plus high, when it bought $2.40 in the late 1970s, it remains nowhere near an all-time record, given that just after World War II one British pound bought $4.00.

Despite its record lows overnight, the dollar grew modestly stronger against the euro after a U.S. inflation report came in close to expectations and housing figures were mixed.

Fresh concerns Tuesday about the depressed U.S. housing market helped push down the dollar, but testimony by Federal Reserve Chairman Ben Bernake to Congress, in which he said inflation remains the “predominant” concern and insisted the housing market is correcting, had little impact on the currency.

The Fed has left its benchmark rate unchanged at 5.25 percent for a year after two years of steady increases.

That contrasts with the course of the European Central Bank, which has raised rates steadily and is expected to do so again to 4.25 percent in September.

The Bank of England last week increased its benchmark rate to 5.75 percent, a six-year high, and higher-than-expected inflation figures in England released this week raised the likelihood of another increase.

Higher interest rates, a weapon against inflation, can bolster a currency by giving better returns on fixed-income investments.

The dollar slipped to 122.07 Japanese yen, down from 122.38 yen late Tuesday in New York.

A service of the Associated Press(AP)