NEW YORK, Nov 24 (AFP) - The dollar plummeted to new lows against the euro Wednesday on expectations Russia could par down its dollar reserves in favor of euros and amid ongoing concerns over the US budget and current account deficits, analysts said.
The euro spiked to an all-time high of 1.3188 dollars in late US trading Wednesday afternoon.
Around 2200 GMT, the euro was trading at 1.3185 dollars, up from 1.3084 dollars in late trading Tuesday.
The dollar has fallen steadily against the euro since the start of the year, but the decline has become more pronounced in recent weeks as the euro has knocked up fresh gains against the struggling American currency.
The dollar also declined against the Japanese yen, trading at 102.79 yen, down from 103.30 on Tuesday. The dollar is now trading at multi-year lows against a basket of currencies.
Speculation that Russia was mulling to build its euro reserves has added to the dollar`s demise.
Whether Russia trims its dollar holdings, analysts said the US currency will stay on the backfoot so long as the US continues to record massive deficits on both the current account and the fiscal front.
The US current account deficit reached a record 166.2 billion dollars in the second quarter, with Japan and China the major buyers of US debt in recent years.
"The dollar is friendless and in danger of freefall," said Neil Mackinnon, chief economist at ECU Group.
As long as the market believes the US administration is following a policy of benign neglect, then the dollar will continue to fall whatever the European Central Bank and the Bank of Japan does to counter-act it, he added.
The dollar`s freefall has continued despite US Treasury Secretary John Snow reiterating the administration`s belief in a strong dollar.
And some currency analysts are now predicting the euro could strike 1.45 dollars and that a two dollar pound is just around the corner. Meanwhile, there is even talk that the dollar could drop to 85 yen.
Even some good US economic news failed to stem the dollar`s decline on Wednesday.
The Labor Department said first-time claims for state unemployment benefits fell 12,000 to 323,000 in the week ended November 20.
The larger-than-expected drop put claims at their lowest level since the week ended September 4.
However, the University of Michigan`s closely watched consumer sentiment index registered a surprise drop in November, falling to 92.8 in late November from 95.5 earlier in the month.
Consumer sentiment is regarded as a key economic touchstone as consumer spending accounts for some two-thirds of US gross domestic product (GDP).
Traders added that warnings from Federal Reserve chairman Alan Greenspan over the US current account deficit Friday and a lack of commentary on the dollar`s fortunes at a weekend meeting of the G20 continued to pressure the dollar.
In late New York trade, the dollar stood at 1.1453 Swiss francs from 1.1582 Tuesday.
The pound was at 1.8815 dollars from 1.8685 the previous day.
11/24/2004 22:59 GMT - AFP