–The Euro...The New World Currency?

Euro tops $1.55 for first time
BBC

The euro has set a new record high against the US dollar, rising above $1.55 for the first time.

Skepticism about whether the Federal Reserve's plans to provide liquidity to the banking system will work was one factor weakening the dollar.

The new high was set at $1.5559 before the European currency fell back slightly to trade at $1.5552.

Speculation that the United Arab Emirates is about to abandon its dollar peg also weakened the US currency.

The euro chalked up its biggest daily gain in more than two years, rising 1.5%.

Presidential concern
The sliding dollar also helped spur oil prices to a record high above $110 a barrel as investors are buying oil to hedge against the sliding value of the greenback.

President George W Bush said he would like to see a stronger dollar and said he was concerned that its slide was one factor behind the soaring oil price.

"One reason I am for a strong dollar is because... I think it helps deal with inflation," he said.

"Our dollar doesn't buy as many barrels of oil as it used to, and so therefore it's more expensive for the American people."

Worries

Analysts said there were worries that the initiative from the Fed and other large central banks would do little to ease the wider problems facing the US economy.

"The Fed's move addresses short-term liquidity issues, but doesn't address underlying credit concerns and the US housing decline, which have not gone away," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.

Strong economic data in the euro zone made it less likely that there will be an interest rate cut from the European Central Bank, while the Federal Reserve is widely expected to cut rates at its next meeting.

Industrial production in the 15 states that use the euro rose unexpectedly fast in January, growing 0.9% from December and 3.8% from January 2007, according to officials from Eurostat.

The fall in the dollar will make travelling abroad more expensive for Americans and it will increase the cost of imported goods.

However, it should also make US exports more competitive on world markets.