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By Anne D. Picker, International Economist, Econoday
Monday, April 28, 2003
Currencies
The dollar fell to pre-Iraqi war levels against the euro last week as the U.S. GDP report disappointed traders. And while there has been little to cheer about in Europe given its anemic economy, interest-rate spreads and the reduction of risk premium were cited as reasons for the euro's gain. Higher yields elsewhere and the huge U.S. current account deficit are contributing to the disappointing dollar performance. Friday's GDP report didn't help the dollar. With the world reliant on the U.S. recovery, lower-than-expected growth was bound to disappoint. Falling stocks also make it harder for the U.S. to attract the $1.5 billion of foreign capital it needs every day to offset its current account gap, the broadest measure of international trade. Low U.S. interest rates are also dimming demand for dollars. The Federal Reserve's 1.25 percent benchmark rate is 2 percentage points below Canada's rate and 1.25 points below the euro's rate.