Euro Tops $1.50, At 14-Month High

By: CNN
By: CNN

NEW YORK (CNNMoney.com) -- The dollar slumped Wednesday, with the euro rising above $1.50 for the first time in 14 months, as optimism about the global economic recovery boosted demand for higher yielding currencies.

The euro was up 0.4% versus the dollar to $1.5010 after trading at $1.5018 earlier. It was the first time the 16-nation currency climbed above $1.50 since August 2008.

The British pound gained 1.3% against the greenback at $1.6596. Against the Japanese yen, the dollar was up 0.2% to ¥90.9.

The dollar index, which gauges the dollar's value against the Euro, pound, yen and other currencies, was down 0.4% to 75.2. (Check rates on 16 currencies here.)

The index has tumbled more than 15% since March as improved economic news has encouraged investors to abandon the perceived safety of the dollar to seek higher returns in more risky assets such as stocks and commodities.

That trend was in effect Wednesday as U.S. stocks and oil prices rallied following upbeat financial results from Morgan Stanley and Wells Fargo.

"As the equity markets turn higher, the increased risk appetite has helped foreign currencies against dollar," said Nick Bennenbroek, a currency strategist with Wells Fargo.

At the same time, the dollar has been pressured by concerns about the nation's budget deficit, which topped $1.42 trillion in fiscal 2009.

There is a "very strong anti-dollar sentiment" in the market, Bennenbroek said, which is tied to "concerns about some of the problems that the U.S. faces, particularly the fiscal deficits."

The government has spent billions this year to help combat the worst economic crisis since the Great Depression. The Federal Reserve has slashed interest rates to historic lows near 0% to help revive the economy.

While the economy has shown some signs of improvement, the likelihood of a robust recovery remains in question. That has led many traders to bet against the dollar based on the assumption that rates will remain low for a longer-than-expected period of time.

Looking ahead, many analysts warn that deficit concerns could continue to weigh on the dollar as the government considers expensive new programs such as health care reform.

"The big picture is that the dollar is in trouble," said Ronald Simpson, managing director of global currency analysis at Action Economics. "The U.S. fiscal picture is ugly and it's not looking to improve any time soon."

However, some economists say a weaker dollar could help facilitate the economic recovery by boosting profits for U.S. companies that sell goods overseas.

"A softer dollar is great news for U.S. manufacturers," said Tu Packard, senior economist at Moody's Economy.com.


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