Euro falls to near two-year low against dollar |

Euro falls to near two-year low against dollar

BERLIN – The euro fell to a nearly two-year low against the U.S. dollar on Tuesday on concerns over the ongoing violence in France and as traders looked for the gap to widen between key European and American interest rates.The 12-nation currency fell to $1.1711 in morning European trading, its lowest level since trading at $1.1631 on Nov. 13, 2003 and down from $1.1793 late in New York the night before. It recovered to $1.1762 in late trading.The British pound also fell to $1.7403 from $1.7434. However, the dollar was lower against the Japanese yen, falling to 117.27 yen from 117.62 the night before.The dollar built on gains against the euro from last week, when the U.S. Federal Reserve raised interest rates to 4 percent, the highest level in more than four years, and there were indications it would continue with its measured increases.By contrast, the European Central Bank left its rate unchanged last week at 2 percent, where it has been for almost 2 1/2 years.HSBC currency strategist Adrian Hughes said many had overestimated the downward pull of huge U.S. budget and trade deficits on the dollar in predictions earlier this year, and that markets now seemed to be more driven by a focus on interest rates.”We’ve been arguing that structural deficits are more important than cyclical issues, but it’s plain that this year with the Fed raising rates as much they have, interest rate arguments for investing in currency markets … have been extremely successful,” he said in a telephone interview from London.”When the WTO and G-8 meet later in December we may see some return to the fears and worries about the structural deficits again.”Higher interest rates help boost the U.S. currency by making dollar-denominated securities relatively more attractive.The market has also been affected by uncertainty over which policies a new coalition government in Germany will follow, and rioting in France, the worst civil unrest in that country in decades.The violence in France continued for a 12th straight day overnight, as rioters in the southern city of Toulouse ordered passengers off a bus and then set it on fire and pelted police with gasoline bombs and rocks. Youths torched another bus in the northeastern Paris suburb of Stains.Though the political situation in Berlin and the riots haven’t been driving markets as much as the interest rates, they are on traders’ minds, Hughes said.”It’s all small bits of background news that are lingering uncertainties,” he said. “Obviously it’s not very good news flow, and although it is not being acted on actively, it’s a depressing thing for anyone watching.”Vail, Colorado

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