Euro surpasses 1.50-dollar mark for first time

Published: Tuesday February 26, 2008

The euro broke the 1.50-dollar mark for the first time ever Tuesday in the wake of lackluster US economic reports that renewed fears the American economy could be falling into a recession.

The European currency reached 1.5047 dollars at 2230 GMT late Tuesday before falling back to 1.5017 dollars.

Analysts say the euro was given a sudden boost from a better-than-expected German business indicator, which stood out amid a series of lackluster macroeconomic indicators in the United States.

The greenback has come under pressure as traders believe sluggish economic reports could pressure the Federal Reserve to keep cutting US interest rates.

Speculators generally prefer to invest or hold currencies in countries where interest rates are rising or expected to increase in they hopes they can increase their potential returns.

The dollar fell to a record low against the single European currency in electronic trading in New York as traders continued assessing the latest economic readings.

An influential survey, released earlier Tuesday, on US consumer sentiment during February delivered fresh ammunition to market forecasters who are predicting a recession.

The Conference Board private research group said its consumer confidence index dived to a reading of 75.0 in February, compared with 87.3 in January. The index had also fallen in January.

The survey showed the confidence of American consumers had slumped to its lowest level since November 1993, with the exception of polling conducted as US forces toppled the government of former Iraqi dictator Saddam Hussein five years ago.

"With so few consumers expecting conditions to turnaround in the months ahead, the outlook for the economy continues to worsen and the risk of a recession continues to increase," said Lynn Franco, a director of the Conference Board's consumer research center.

The euro's new record run saw it smash a prior record high of 1.4967 dollars struck on November 23.

A separate report on wholesale inflation also weighed on the dollar's fortunes, market participants said.

The Labor Department said inflation at the wholesale level surged a stronger-than-expected 1.0 percent in January due to rising food and energy prices.

The accelerating costs of food and energy -- especially crude oil prices -- have caused producer prices to rocket 7.4 percent in the United States in the past twelve months to January.

"Inflation data is clearly not good. The 1.7 percent increase in food prices and the 1.5 percent increase in energy prices will further fuel the recently heightened inflationary concerns," said Dick Green, a president at

The dollar has lost considerable ground against the euro and other currencies in the past year amid a two-year long housing slump and a credit crunch sweeping financial markets.

The economic turmoil has encouraged the Fed to slash borrowing costs, which has further weighed on the American currency.

Traders said US budget and trade deficits were also undermining the dollar, although recent reports have shown the weak dollar giving a boost to American-produced exports.

Market participants said a better-than-expected report on German business conditions had also helped buoy the euro.

"The German Ifo survey for business confidence unexpectedly rose for the second consecutive month in February, rallying the euro," said Boris Schlossberg, a senior currency analyst at Forex Capital Markets.

An index of how managers assess the current business climate compiled by Germany's Ifo institute rose in February for the second month running to 104.1 from 103.4 points in January.