Dollar hits new multimonth low vs euro, pound, yen
May 22 10:42 AM US/Eastern
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Dollar Sinks Yet Again
NEW YORK (AP) - The dollar kept falling Friday, notching fresh multimonth lows against the euro, pound and yen as a warning that Britain's debt level may result in its credit rating being cut ricocheted into worries about the massive U.S. deficit.
The 16-nation euro rose to $1.4015 in morning trading from $1.3889 in New York late Thursday—its first time above $1.40 since Jan. 2.
The British pound rose to $1.5916 from $1.5890, peaking at $1.5945 earlier in the session, its highest point since Nov. 6.
Meanwhile, the dollar edged up to 94.51 Japanese yen from 94.23 yen—after earlier falling to 93.82, its lowest point since Feb. 23.
On Thursday, Standard & Poor's said Britain may have its rating cut because of rising debt levels. Though the ratings agency reaffirmed the country's actual long-term credit rating at "AAA," it said the outlook had deteriorated because of massive borrowing to deal with the recession and the banking crisis.
Because Britain is pursuing similar policies to the U.S.—with both the Bank of England and the Federal Reserve injecting billions of dollars in their economies by buying assets from banks—the move also weighed on U.S. assets and the dollar. Treasurys sold off Thursday, and continued to do so Friday. S&P's announcement "wound up creating more problems for the U.S. dollar than for the British pound," HSBC analysts said in a research note.
"The problem for the U.S. is particularly acute because of its reserve status," said UBS analyst Brian Kim in an e-mail to investors Friday. Major holders of U.S. debt, such as Middle Eastern sovereign funds and the Chinese government,
have not been shy about calling the U.S. out for what it sees as policies that will trigger inflation, shrinking the value of their Treasury holdings. The Fed in March said it planned to buy up billions in long-term Treasurys and $1.25 trillion in mortgage-backed securities, flooding the money supply.
"The dollar has weakened as dollar bears have now added concerns on U.S. credit ratings to their arsenal," Kim said. Earlier this month, the Obama administration hiked its forecast for this year's federal deficit to $1.84 trillion. The deficit is approaching $1 trillion for the budget year that began Oct. 1.
Big deficits mean the government has to borrow more, which could put its credit rating at risk. They can also put upwards pressure on inflation, thus cutting the purchasing power of the dollar. In other trading, the dollar fell to 1.1235 Canadian dollars from $1.1404 and slid to 1.0833 Swiss francs from 1.0936 francs late Thursday.
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But, but, but, I thought deficit spending was going to boost the economy?
