The dollar approached its all-time low against the euro on speculation the Federal Reserve's plan to provide funds to banks won't be enough to break the gridlock in money-market lending and stem credit losses.

"Read the need for such new measures as being a symptom of what ails the world and not a panacea for its problems," said David Simmonds, the London-based global head of currency research at Royal Bank of Scotland Plc, the world's fourth-biggest foreign-exchange trader.

An index tracking the dollar against six major currencies fell close to a record low as traders wagered the Fed will cut rates by as much as three quarters of a percentage point next week to avert a recession, while the European Central Bank keeps borrowing costs unchanged. The yen advanced against the dollar and the euro after a government report showed Japan's economy grew faster than forecast in the fourth quarter.

The dollar fell to $1.5473 per euro at 8:26 am in New York, from $1.5338 on Tuesday, when it touched $1.5495, the weakest level since the European single currency's debut in 1999. It dropped to 102.41 per yen from 103.42 yen, within 1 yen of an eight-year low. The euro fell to 158.49 yen from 158.61.

The euro stopped short of setting a new high after Luxembourg Finance Minister Jean-Claude Juncker said he is "very vigilant" on the euro in current circumstances and that exchange rates should reflect fundamentals. He spoke to reporters in Brussels.

European industry

The yen climbed as a government report showed Japan's economy grew an annualized 3.5 percent last quarter, faster than the 2.3 percent median forecast of economists surveyed by Bloomberg News.

The euro extended its gains against the dollar earlier after a European Union report showed industrial production in the region increased for the first time in three months in January. It rose 0.9 percent from the prior month, more than twice the rate forecast by economists surveyed by Bloomberg.

The US currency also fell on speculation Gulf central bankers will consider dropping the dollar peg when they meet next week. A Qatari official denied in a telephone interview that the meeting will discuss currency revaluation.

'Aspirin' for dollar

The ECB's main rate is 1 percentage point above the Fed's 3 percent target rate for overnight loans between banks.

Policymakers in the US, UK, Canada, Switzerland and the euro region agreed on Tuesday on a second round of emergency-loans to curb rising money-market rates. The Fed said it will lend as much as $200 billion of Treasuries through a new lending tool and widen the collateral it accepts to include mortgage-backed securities.

This is "not a panacea, more like an aspirin for the dollar", analysts led by Daniel Tenengauzer, New York-based head of global currency strategy at Merrill Lynch & Co, wrote in a research note yesterday.

"There is a reasonable risk that this Fed move reflects the depth of their concern with US asset markets, not a Fed formula to resolve US asset-market difficulties."

Agencies

(China Daily 03/13/2008 page17)