LONDON, Dec 16 - The dollar fell to a record low against the euro on Tuesday as its euphoria over the weekend capture of former Iraqi leader Saddam Hussein gave way to concerns about the widening U.S. current account deficit. Figures showing the extent of the U.S. current account gap for the third quarter will be released later in the session, as well as consumer prices data which will provide clues on how long U.S. interest rates are likely to stay low. "Financial markets were already discounting risk factors related to Iraq so (the capture) didn't have a lasting effect," said Mary Davis, global foreign exchange strategist at CSFB. "As far as currencies are concerned the dollar is under pressure from a combination of the level of the current account deficit and monetary policy gap between the U.S. and Europe." The euro rose to its latest record high of $1.2361 , according to data, bringing its gains this year to nearly 18 percent.
By 1045 GMT it was holding just below the peak at $1.2345, around a third of a percent higher from late New York levels. The single currency was also up against the yen at 132.86 yen , sterling and the Swiss franc. The greenback fell to a six-year low against the Australian dollar and was trading around a seven-year low against a basket of currencies <=USD>. It was steady against the yen, supported by wariness that the Japanese authorities would step in to stop the U.S. currency's descent. It was trading around 107.62 yen , around one yen above a three-year low set last week.
OLD THEMES
The market had rapidly concluded the capture of the former Iraqi leader did not signify an end to geopolitical tensions and swiftly turned its attention to the old theme of twin U.S. deficits which has sent the dollar lower this year. Current account data for the third quarter due at 1330 GMT is expected to show a deficit of $136.10 billion, slightly below $138.67 billion in the previous quarter. International capital data from the U.S. Treasury released on Monday showed foreign investors bought a net $27.65 billion of U.S. financial securities in October. "It's the need for the dollar to continue its downtrend in order to rebalance the U.S. economy. Yesterday's capital flows numbers showed that although the U.S. economy saw an inflow in October it was still insufficient to cover the trade side of the equation," said Paul Robson, economist at Bank One in London. Kota Kimura, assistant manager at Shinkin Central Bank in Tokyo said: "Basically the U.S. needs about $45 billion a month from abroad to make ends meet. But clearly it is not receiving that much." U.S. consumer prices, also due at 1330 GMT, are expected to rise 0.1 percent from unchanged in October. November industrial production data is also due at 1415 GMT. In Japan, Bank of Japan Governor Toshihiko Fukui said the central bank was watching the effects of the strong yen on corporate profits but it may not necessarily be damaging. The BOJ upgraded its view of the economy and left monetary policy unchanged as expected. The bank said the economy was gradually recovering, citing an increase in exports and capital spending.//