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Euro crumbles toward fresh lifetime low

NEW YORK: The euro crumbled to three-week lows on Friday, dangling less than a cent above its all-time floor, as hopes of improved European growth were blinded by fresh evidence of America's dazzling economic boom.

The single currency's severe losses of more than 3.5 percent over the past three days eclipsed its foray at the start of the week above the psychologically critical $1.00 level for the first time in a month.

From a one-month high of $1.0089 on Wednesday, the euro EUR tumbled as low as 97.25 cents, within sight of its 96.60 cent lifetime trough, before closing on Friday at 97.42.

"Everyone has just given up on the euro ever getting any legs and rallying. I think we'll be down to 95.50 cents by the beginning of next week," said Ricardo Gomes, foreign exchange manager at HSBC in New York.

The euro's losses against the yen on Friday were even steeper, losing 2.62 percent to close at 107.46 yen.

The yen's strong gains on the euro helped boost the Japanese currency nearly 1 percent against the dollar to close at 110.30 yen from 111.27 yen at Thursday's New York close.

The euro began the week on a buoyant note, blasting above parity to the dollar when a top European central banker hinted euro zone interest rates may rise and investors fretted that last Friday's sharp selloff in US technology stocks could continue.

What a difference a week makes.

America's high-flying technology shares soared to dizzying new heights, keeping foreign money in the United States even as blue-chip stocks tumbled, while European monetary officials threw cold water on prospects for imminent rate hikes.

Differences in global growth rates -- and the need to tighten credit -- were illustrated most starkly on Friday when the US Commerce Department said America's economy expanded at an annual 6.9 percent rate in the fourth quarter.

"The United States has come out on top of the growth surprise story again," said Jim McCormick, currency strategist at J.P. Morgan.

The data, revised upward from an initial 5.8 percent growth rate, left little doubt that the Federal Reserve would raise its 5.75-percent federal funds rate by at least one quarter point in March.

While the fear of higher rates spooked US equity markets, sending the Dow Jones industrial average below the key 10,000 level, some analysts said the Fed's incremental approach to rate hikes should help keep the dollar supported.

"The market thinks the Fed will keep inflation contained and engineer a soft landing for the US economy, helping limit the downside on the US equity market," said Allison Montgomery, currency economist at IDEAGlobal.com.

"While that happens, the dollar should really remain well supported," she said.

Weaker than expected euro zone M3 money supply data, released earlier on Friday, showing that annual growth slowed to 5.0 percent in January from 6.2 percent in December, further undermined the single currency.

A separate batch of euro zone data showed European growth was picking up but was not seen as strong enough to warrant an imminent monetary tightening.

Looking ahead, analysts will be watching US manufacturing and employment data next week for signs of price pressures which may tip the Fed's hand on interest rates next month.

And while expectations for higher European rates have faded since European Central Bank Vice President Christian Noyer dampened speculation that a tightening was imminent, the market will still closely watch an ECB policy meeting on Thursday.

"The last ECB rate hike (in February) appeared to be geared toward at least implicitly supporting the euro," said J.P. Morgan's McCormick.

"One would have to think with the euro again sitting near the lows, the market will read into next week's meeting...that choosing not to hike would probably add to the sentiment that the euro can fall further," he said.-Reuters