Dollar sinks to new low against euro

The dollar sank to a new low against the euro on Friday but recovered some ground against the British pound even as Wall Street ended a turbulent week down sharply.

The euro rose to a record high of $1.4752 in European trading before falling back to $1.4673 in the late afternoon, above the $1.4667 it bought Thursday. Its previous trading high was $1.4730 on Wednesday.

The dollar is down nearly 12 percent against the euro since the start of the year.

The dollar gained on the euro after the European Union, blaming oil prices and market turmoil, cut its economic forecasts for the next two years, with growth now expected to slow to 2.4 percent in 2008 and 2009.

Britain's pound went as high as $2.1161 before falling to $2.0909, below the $2.1087 it bought Thursday.

The dollar weakened against many of the European currencies and the yen on Thursday after Federal Reserve Chairman Ben Bernanke said economic growth would slow noticeably in the United States in the coming months while rising oil costs would increase inflation pressures.

The dollar also has been suffering from speculation that the Fed, which has cut its benchmark rate twice, may keep doing so even as its European counterparts hold their rates steady or raise them.

Although lower interest rates can jump-start an economy, they can also weaken a currency as investors transfer funds to countries where they can earn higher returns.

"In periods of risk aversion, money managers tend to unwind risk and buy low-risk currencies back," said David Gilmore, a partner at Foreign Exchange Analytics in Essex, Conn. This has sent the yen and the Swiss franc down sharply as investors moved away from the yen-carry trade.

The yen-carry trade is an investment strategy that involves selling off the low-yielding yen in favor of higher-yielding assets.

The dollar slid to an 18-month low against the yen, falling to 110.52 yen before rising slightly to 111.07 in late New York trading, below the 112.36 the Japanese currency was worth Thursday. The dollar also fell against the Swiss franc, falling to 1.1247 Swiss francs from 1.1268 Swiss francs Thursday, while rising to 94.15 Canadian cents Friday from 93.89 Canadian cents.

The Canadian dollar has risen almost 20 percent in value against the U.S. dollar this year, achieving one-to-one parity for the first time since 1976. On Wednesday, the Canadian dollar was worth $1.1039, its highest level in the post-1950 era of Canadian floating exchange rates.

The "loonie" has taken flight as prices of Canada's major exports, including oil and gold, have surged.

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