MercoPress. South Atlantic News Agency

US dollar plunge triggers concern among trade partners

The Euro soared to a new high against the US dollar on Tuesday, reaching US$1.6038 in European trading as markets worried about the ongoing US lending crisis and the country's economy.

The previous record of US$1.6018 dates back to April 22; however after reaching the record, the Euro fell back to US$1.5969. The British pound rose as high as US$2.0155 before declining to US$2.0051 in the late afternoon, still above the US$1.9916 in late New York trading on Monday. The dollar climbed to 104.35 Japanese yen from 103.09 yen. The dollar has been on an extended slide against other major currencies, especially the Euro and the Japanese yen, for some five years, during which the US trade deficit with the rest of the world generally continued to widen. That required more borrowing from abroad, further weakening the dollar. At the same time, European economies expanded, driving up the value of the Euro against the dollar. Over the past year, a series of rate cuts by the Federal Reserve to deal with the fallout from the US housing and credit crises have also pushed dollar's value downward. In contrast, the European Central Bank, which sets interest rates for the 15-nation Euro zone, has only adjusted its own rate just once since a year ago making no cuts and then rising rates by 25 basic points last month to 4.25%. Lower interest rates can weigh on a nation's currency as traders transfer funds to countries where they can earn better returns, while higher rates are used to curb inflation But the Euro rise has caused concern among companies and politicians in countries that use the currencyâ€"fueling fears that it could dampen exports as European goods become more expensive to US buyers. The increase came even as a new report showed that German investor confidence tumbled to its lowest level in more than 16 years amid soaring food and oil prices in Europe's biggest economy. The ZEW institute said its monthly index, which measures investors' expectations for the German economy over the next six months, dropped to minus 63.9 in July from minus 52.4 in June.