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Dollar Sinks to New Lows on Fed Rate Cut Hopes

The dollar sank to another record against the euro on Monday, trading at as much as $1.44 against the 13-nation currency for the first time, as markets anticipated a likely interest rate cut by the U.S. Federal Reserve this week.

Exchanging Dollars and Euros
Exchanging Dollars and Euros

The euro topped its previous record of $1.4393 set Friday, and climbed as far as $1.4438 before settling back to $1.4411 in late European trading.

That was still above the $1.4385 it bought in New York late Friday.

The euro has been climbing steadily against the dollar, regularly touching new highs since August amid concerns about the health of the U.S. economy.

Those worries have been stoked by the subprime credit crisis and increasingly disappointing economic reports.

The euro's rise, which makes goods from the U.S. cheaper to buy, can hurt exports from countries that use the currency, among them Germany and France.

The European Commission said Monday the euro exchange rate in the third quarter was roughly 22 percent above its 1995-2006 average against the U.S. dollar, and about 26 percent above its average against the Japanese yen.

"The international price and cost-competitiveness position of the euro area continued to deteriorate between the second and third quarters of 2007," it said.

Markets expect the Fed to cut interest rates from their current level of 4.75 percent on Wednesday -- adding to an unexpectedly bold half-point cut last month.

"Following a series of hawkish speeches by Fed officials during the last week and disappointing housing numbers, we are convinced that the Fed is inclined to cut rates again," HVB/UniCredit economists Harm Bandholz and Davide Stroppa wrote in an investment note. They forecast a quarter-point cut.

On Monday, the British pound bought $2.0614 -- near a three-month high, and up from $2.0521 on Friday.

The dollar rose against the Japanese currency, however, climbing to 114.73 yen from 114.22 yen.

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