US Dollar Slumps to 20-Month Low against Euro

The US dollar slumped to a 20-month low against the euro on Monday, prompting a call by a French official for "collective vigilance" against further currency moves that might hurt the eurozone.

The European single currency struck 1.3177 dollars - the highest point since March 22, 2005.

At 2200 GMT, the euro fetched 1.3131 compared with 1.3094 dollars in New York late on Friday.

The dollar managed to rise to 116.05 yen from 115.74 yen late on Friday.

The greenback remained on the back foot on a combination of factors, ranging from the possibility of Asian central banks changing their dollar reserves into other currencies to the prospect of weak US data as the week unfolds.

Analysts said complaints from European politicians about the euro's steep gains helped limit the dollar's declines. Most analysts predict the dollar's falls have only stalled temporarily, however.

Simon Derrick at Bank of New York said he expected a slide in the dollar based on several factors: a likelihood that the Federal Reserve will keep interest rates unchanged while the European Central Bank is hiking rates; diversification by China of its dollar holdings; and intervention by other Asian central banks to stem rises in their currencies.

"As each of the factors weighing on the greenback is, in one form or another, connected to the core issue of 'global imbalances,' it is difficult to see the dollar's current weakness as a short-term phenomenon," Derrick said.

John Kicklighter at Forex Capital Markets said traders are also anticipating cooling US economic conditions, which would hurt the US unit. As a result, he said data on housing this week would be scrutinised.

Housing sales data on Tuesday and Wednesday could prove to be "defining" for the dollar as investors seek "to define spending, wealth and overall growth in the economy in the coming months," he said.

The strength of the euro cast clouds over the 12-nation eurozone's outlook as the bloc's finance ministers gathered in Brussels to take stock of their combined economy's health.

Raising his concerns ahead of the meeting, French finance minister Thierry Breton called for caution about the dollar's recent weakness towards the euro.

"The recent depreciation must trigger our broad collective vigilance," he told an economic seminar in Paris.

Monday's meeting could offer eurozone ministers a chance to follow Breton's example and effectively try to talk down the euro by calling attention to its strength.

"So far European finance ministers have not come close to speaking with one voice on euro strength," said Jamie Coleman at Thomson Ifr Markets. "Only when they act in concerted fashion will the market take heed."

In late New York trade, the dollar stood at 1.2065 Swiss francs after 1.2091 Friday.

The pound was being traded at 1.9373 dollars after 1.9319.

Source: AFP

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