BERLIN (AP) — The dollar hit another new low Friday as U.S. inflation data reinforced expectations
that the Federal Reserve may cut interest rates again.
The 13-nation euro reached $1.4207 in late afternoon European trading — exceeding its previous
peak of $1.4189, reached Thursday, and setting the seventh record in as many trading days. The euro had bought $1.4160 in
New York late Thursday.
The euro spiked above $1.42 after the release of data showing that a key measure of inflation in the U.S. eased last month to the slowest pace in 3½ years.
The 1.8% rise in core inflation over the past year was within the Fed's comfort zone for core price increases
of 1% to 2%, meaning they could cut again.
In other trading, the British pound rose to $2.0353 from $2.0270 in New York late Thursday. The dollar
was down to 115.21 Japanese yen from 115.59 yen.
The dollar has been sliding since the Fed last week cut interest rates by a larger-than-expected half
percentage point. Since then, disappointing U.S. economic data have stoked expectations that another rate cut is on the way.
Lower interest rates, used to jump-start an economy, can weaken a currency as investors transfer funds
to countries where their deposits and fixed-income investments bring higher returns.
As the dollar sinks, consumers find imported products— Australian wines, Japanese cars or Chinese
toys — are more expensive.
The weaker dollar is a boon for U.S. exporters whose goods are now less expensive for foreign customers.
Net exports in the second quarter boosted economic growth.
So far, the dollar's decline has been gradual. If investors were to suddenly dump their holdings of the
U.S. currency, the Fed's job of managing an already-troubled economy would instantly grow more complicated.
A plunging dollar would argue for interest rates to be raised, to encourage investors to hold dollars.
But higher rates would be a drag on an economy that is weakly advancing. "That's the kind of nightmare the Fed wants to avoid,"
says Morris Goldstein of the Peterson Institute for International Economics.
Still, the dollar's status as the world's reserve currency appears safe. It is far more widely used globally
than the euro and remains the major holding of foreign central banks. Dollar weakness over "many, many years" would be needed
for that to change, says economist Kristin Forbes of the Massachusetts Institute of Technology, a former White House adviser.