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Euro sinks below $0.90
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May 3, 2000: 5:04 a.m. ET
Currency hit by signs of US economic strength, expected Fed rate move
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LONDON (CNNfn) - The euro slumped to a record low against the dollar Wednesday, falling below 90 cents, as traders backed the U.S. economy to carry on growing faster than the 11 euro-zone nations as a considerable interest rate hike by the U.S. Federal Reserve looms.
The 16-month-old European currency was trading at $0.8935 in afternoon European trading Wednesday, after dropping as low as $0.8891. The euro has weakened by more than 23 percent against the dollar since its launch in January 1999.
Economists pointed to U.S. economic data, notably a key housing report released Tuesday that showed a 4.5-percent increase in new home sales in March, as suggesting that inflation pressures may still lurk. Such data could cause the Federal Reserve to lift interest rates further to cool the economy.
The drop came despite comments from Christian Noyer, vice president of the European Central Bank, who told a committee of the European Parliament that it wasn't the ECB's intention to push down the euro, Reuters reported. Noyer said the bank wants a stronger currency, adding that he was confident the euro would revive. 
The euro got little support from an upward revision in third-quarter gross domestic product for the 11-nation euro zone, to 3.1 percent from 3 percent, and upbeat reports on a business confidence in Italy and consumer optimism in France.
Separately, the European Commission on Wednesday recommended Greece for entry into the 11-nation euro zone after the country met conditions that the EU set regarding levels of public debt and budget deficit.
Euro zone reviving, but U.S. stronger
Economists attributed the euro's weakness to a strong U.S. economy that was drawing investment away from the euro zone, and a belief that Federal Reserve policy makers will be forced to hike interest rates. Most economists expect the Fed's policy-making panel to raise its key short-term rate a half-percentage point at its next meeting on May 16.
"The U.S. economy is showing no signs of losing steam," said Tony Norfield, head of global currency trading at ABN Amro. "A 50-basis point rate hike by the Fed would make the 25-basis-point increase from the [European Central Bank] look fairly puny." One percentage point equals 100 basis points.
Economists were looking ahead to a U.S. non-farm payroll report and unemployment data Friday for signs as to whether the American economic engine is overheating. Expectations of higher interest rates in the U.S. could prompt investors to shift money into dollar-denominated deposits, out of other currencies including the euro.
Norfield also said some big-ticket corporate investments, such as Dutch insurer ING's $6 billion friendly merger with ReliaStar, could have added to pressure on the European single currency, as European companies buy dollars and sell euros to carry out their transactions.
"It highlights that a great deal of investment is flowing out of the euro area and into the U.S., the U.K. and elsewhere," Norfield said. 
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European Central Bank
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