The US dollar's slide against the euro kept up its momentum yesterday, with the European currency rising above US$1.33 for the first time.
It was the fourth day in a row the US dollar hit a new all-time low against the euro, which rose to US$1.3329 in early trading. On Thursday, the euro topped US$1.32 for the first time and traded at US$1.3248.
The current US dollar slide, driven primarily by concerns over the US trade and budget deficits, has taken the euro from around US$1.20 about two months ago.
The US dollar's current weakness has been helpful to US exports, making American products less expensive overseas, but European leaders have begun to worry openly that it might damage their fragile export-driven economic recovery.
The US dollar's recent slide on the foreign exchanges could still have some way to go, Bank of England chief economist Charles Bean suggested on Thursday.
As the US dollar plunges to record lows against the euro, Bean said the evolution of global current account imbalances and its effect on exchange rates was one of the biggest clouds on the economic outlook.
He said that while the present situation of foreigners funding the US current account deficit could continue for a while, "overseas investors are unlikely to continue accumulating dollar assets at the current rate indefinitely."
Bean noted that the US dollar fell around 30 percent in trade-weighted terms when the US twin deficits were eliminated in the 1980s.
"To date, the real trade-weighted value of the US dollar has only fallen 15 percent since its peak in February 2002, so a further -- possibly substantial -- decline may accompany closure of the current account deficit," Bean said, according to the text of a speech to be delivered in Colchester, England.
But he cautioned that the timing and nature of this adjustment was very hard to predict.
Bean also reiterated the BoE position that considerable uncertainties surround the economic outlook.
"And that is why it does not make sense to ask whether interest rates have peaked," he said.
"Neither I nor my colleagues on the Monetary Policy Committee know how the data will unfold over the coming months and quarters, and it is the data that will determine where interest rates go next," Bean said.
The BoE has raised interest rates five times in the past year to 4.75 percent and markets have increasingly taken the view that there are no more hikes in the pipeline following growing evidence that the housing market has turned.