The dollar slipped to its lowest levels in more than a year on Wednesday, weakening to $1.50 against the euro as global investors put money into other currencies and markets.
Over the last seven months, the dollar’s value has declined by more than 15 percent as federal deficits in the United States rose to record levels, stirring fears that the government’s aggressive attempts to combat the recession would weaken the American currency and swamp global markets with Treasury bonds.
Now, inflation-wary investors have gone hunting for stronger returns by funneling their money into other countries where interest rates are higher than the record-low rates in the United States, or where rates seem poised to rise sooner. Investors have also migrated from the perceived safety of the dollar into stock markets, and they have snapped up gold, oil and other hard assets
The latest dip in the dollar came as shares on Wall Street pushed higher, and the governor of the Bank of England cautioned that the days of abnormally low interest rates would not continue forever.
“I do not know for how long interest rates will remain so low,” the governor, Mervyn King, wrote in an opinion column published in The Herald newspaper of Scotland. “But at some point they will return to more normal levels and it would be wise to take this into account in your financial planning.”
Central banks around the world have slashed interest rates to stimulate their economies and get credit moving again, and banks in Europe and Britain decided two weeks ago to leave their benchmark interest rates untouched.
On Wall Street, the Dow Jones industrial average was up 39 points, or 0.4 percent, and the Standard & Poor’s 500-stock index was 6 points, or 0.5 percent, higher. The Nasdaq was up 18 points, or 0.8 percent.
A falling dollar pinches Americans traveling overseas, and it can hurt the buying power of consumers and businesses in the United States, who have to pay more for imported goods like foreign-produced oil and gasoline. But it gives a competitive edge to American factories and other businesses that export products to the rest of the world.
The dollar’s weakness against the euro is likely to set off alarms at the European Central Bank, which sets monetary policies for the 16 countries in the euro zone.
“They don’t want to have so much monetary policy tightening when the currency gets this strong,” said Amelia Bourdeau, a currency strategist at UBS. “It’s difficult for exporters, and it’s difficult for financial conditions. They’d rather have the euro a little lower at this point.”
The dollar had not weakened to $1.50 against the euro since August 2008, when commodity prices soared on a speculative fury, and the dollar plunged against other currencies. It sank as far as $1.60 against the euro in the summer of 2008 — a proposition that bankers in the United States and European Union would not like to repeat.
On Wednesday, the dollar also fell to $1.66 against the British pound.
After being down in morning trading, European shares turned higher. The FTSE 100 in London was 16 points or 0.2 percent higher, while the DAX in Frankfurt was 29 points, or 0.5 percent, higher. The CAC-40 in Paris up 7 points, or 0.2 percent. Earlier, the Nikkei stock average in Tokyo fell 0.03 percent.
