Euro soars to record $1.50 (U.S.)

It is getting very worrisome in the U.S. but on the bright side their exports are getting cheaper outside the U.S.

BERLIN — The euro climbed to a record high of $1.5057 (U.S.) in early European trading on Wednesday as sentiment increased that the U.S. Federal Reserve would continue its rate cut campaign.

The 15-nation currency hit the high around 8:30 a.m., local time, before falling back slightly to $1.5048, still above the $1.4967 it bought in late trading in New York on Tuesday, which was equal to the last record high it had reached, back in November.

Meanwhile, the Canadian dollar is continuing its surge against the American dollar. The loonie closed at $1.01, up 1.31 cents on the day after zooming as high as $1.02.

Along with the rise in the British pound, which is nearing $2 again, the surging euro will not be kind to Americans visiting Europe — they'll have to pay more for hotel rooms in Rome, entrance fees at the Louvre and chocolates in Belgium.

On the other hand, the stronger euro makes shopping trips to the U.S. more appealing to Europeans.

A higher euro also makes goods from the euro-zone more expensive for customers abroad, or cuts into manufacturers' profits if they try to keep the U.S. dollar price of products constant.

Gary Thomson, an analyst with CMC Markets in London, said the euro surged because markets are looking for clues from Fed Chairman Ben Bernanke about more rate cuts in the U.S. when he addresses legislators there later in the day.

“Inflation — or perhaps more to the point stagflation — remains a concern for the Fed as seen with yesterday's PPI data and as a result now that the most significant of psychological levels since parity has gone, we could see further downside pressures emerging for the greenback,” he said, referring to a string of disappointing economic reports out of the U.S. on Tuesday.

Those reports included the New York-based Conference Board's Consumer Confidence Index, which fell to 75 in February from 87.3 in January, its lowest level since February 2003. Meanwhile, the U.S. Labour Department reported that wholesale inflation rose by one per cent in January — more than analysts estimated — on rising oil and food costs. Finally, Standard & Poor's reported that U.S. home prices fell 8.9 per cent in the last three months of 2007 from a year earlier, its sharpest drop ever.

Those reports, along with remarks by Federal Reserve Vice-Chairman Donald Kohn that appeared to diminish inflationary concerns and focused instead on greater near-term risk to growth were seen as a clue that Mr. Bernanke is expected to signal more rate cuts.

But, at the same time, the European Central Bank, which has left its own rates unchanged since last summer, is expected to keep them at 4 per cent when it meets next week.

Lower interest rates can jump-start a nation's economy, but may weigh on its currency as traders transfer funds to countries where they can earn higher returns.

The British pound soared to $1.9920 from $1.9862 late Tuesday, while the U.S. dollar fell to 107.01 Japanese yen from 107.26 yen.