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Euro resumes its record-setting run against US dollar

The euro resumed its record-setting run against the US dollar yesterday, climbing to US$1.4153 after a pair of economic reports painted a dismal picture for US consumers and the ailing home sales market.

Though it started the day on a slow slide -- dragged down by a fourth-straight month of declining German business confidence to US$1.4059 -- the euro climbed nearly US$0.01 after the New York-based Conference Board said that worries about jobs and the economy drove the US Consumer Confidence Index for this month to its lowest level in nearly two years.

That decline was augmented by a report that showed sales of existing homes fell for a sixth straight month last month, pushing sales to the lowest point since 2002 because of turmoil in credit markets.

The declines may cause the US Federal Reserve to lower its benchmark interest rate further, said David Jones, chief markets analyst at CMC Markets in London.

"It's clearly still too soon for last week's rate cut by the Fed to be taking any effect, but the question is now what happens at the two remaining meetings this year," he said.

By late afternoon, the 13-nation euro was up to US$1.4131 compared to US$1.4087 late on Monday in New York. The British pound fell to US$2.0186 from US$2.0214.

The strength of the euro drew more concern, with Spain's finance minister warning of problems and a German labor group saying the higher currency could harm the nation's export-driven economy and curtail job growth.

It was a half-point interest rate cut to 4.75 percent by the US Federal Reserve last week that dragged the dollar down. That came in response to the market turbulence in the fallout from the subprime mortgage crisis, and many analysts see more US rate cuts ahead.

While the European Central Bank (ECB) and the Bank of England both kept their key rates unchanged last month, at 4 percent and 5.75 percent respectively, the German Federation of Labor Unions urged the ECB yesterday to follow the Fed's lead.

The euro's rise -- it is up 6.6 percent since the end of last year -- endangers "significant parts of the German export economy and therefore growth and employment in Germany," the group said in a statement, accusing ECB President Jean-Claude Trichet of feeding "irrational fears of inflation."

Lower interest rates, used to jump-start an economy, can weaken a currency as investors transfer funds to countries with higher interest rates, where they get better returns. A higher euro also makes vacations in Europe more expensive for US travelers and can make European companies choose between raising prices or cutting profitability on goods sold in the US.

Spanish Finance Minister Pedro Solbes said the rapid rise of the euro means that companies that use it must be prepared.
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