US dollar plummets to record low against euro
News Limited (AU)
From correspondents in Tokyo
July 23, 2007 02:45pm

THE US dollar touched a new record low against the euro in Asian trade today, hit by jitters about the US housing market troubles and recent falls in global share prices, dealers said.

The euro rose to as high as 1.3845 US dollars in early Tokyo trading, just beating its previous all-time best of 1.3843 seen on Friday.

By late morning in Asia, the euro stood at 1.3830 US dollars, up from 1.3820 on Friday in New York.

The dollar was at 120.93 yen, close to a six-week low, after 121.26 in New York. The euro eased to 167.21 yen from 167.70.

"The dollar remains weak because of concerns about the US housing market and worse-than-expected corporate earning reports which weighed on stocks," said Kikuko Takeda, currency research manager at the Bank of Tokyo-Mitsubishi UFJ.

Disappointment over company results and worries about problems in the US sub-prime mortgage sector – loans to homeowners with patchy credit histories – caused sharp falls on global equity markets on Friday.

Dealers said the falls were affecting carry trade as investors grow more risk averse.

Carry trade is a risky but popular practice of borrowing money in countries with low interest rates such as Japan and investing in countries with high interest rates such as Australia or Britain.

Many Japanese have also been sending their savings overseas in search of higher returns than at home where interest rates remain very low.

Some analysts expect this trend to continue and see the recent rise of the yen against the dollar as a temporary correction, while others believe the outlook for the greenback is worsening due to the sub-prime woes.

Japan's financial markets are keeping a close watch on political events this week ahead of Sunday's upper house election, with polls showing Prime Minister Shinzo Abe's ruling party heading for heavy losses.

A bad result would not automatically cost Abe his job as the ruling coalition enjoys a majority in the more powerful lower house, but it would likely bring pressure on the premier to step down.

Original Text