London - The dollar sank to a new lifetime low against the euro on Tuesday after a warning by European officials on the euro's rise went unheeded by investors determined to dump the U.S. currency.
In a joint statement late on Monday, the European Central Bank and euro zone finance ministers gave their starkest warning to date that they were unhappy with the euro's strength.
But the dollar, under pressure from concerns about the massive U.S. current account deficit, touched an all-time low near $1.3468 and a 12-year low against sterling beyond $1.95 early in the European session.
The comments from the (euro group) meeting were largely repeating previous statements and they are not going to stem the current rise in the euro," said Ian Stannard, foreign exchange strategist at BNP Paribas.
Stannard also said a report in the Wall Street Journal Europe questioning the U.S. government's triple-A bond rating hurt the greenback.
A trader at a U.S. bank said the WSJE article, which canvassed investors' opinions on the U.S.' rating, triggered selling in a market already prepared to take the dollar lower.
"I don't believe there would be a downgrade but the initial reaction was to sell the dollar, then it hit stop losses," the trader said.
By 4:25 a.m. EST, the dollar stood at $1.3446 per euro, down a third of a percent from New York levels. It fetched 102.54 yen, down 0.6 percent on the day.
INTERVENTION JITTERS?
The dollar initially bounced after the euro zone finance ministers' statement late on Monday saying that sharp moves in exchange rates were unwelcome and that they were closely monitoring swings.
The comments fueled jitters over potential central bank intervention in the currency markets.
"The justification for intervention has clearly risen," said Mitul Kotecha, head of foreign exchange research at Calyon, in a note to clients.
"But in our view the risk of intervention is far higher on a break of $1.40," he added.
Belgian Finance Minister Didier Reynders said on Tuesday that the statement was a clear message to the United States and it was up to the United States to do something about the imbalances in its economy.
Japanese Finance Minister Sadakazu Tanigaki said he understood the Europeans' concern and repeated his ministry's complaint that recent moves in currency rates did not reflect fundamentals.
The dollar has shed roughly nine percent against the euro and the yen in the past two months.
A softer dollar risks eroding the performance of exporters in Japan and the euro bloc by making their goods and services more expensive in dollar terms and denting the value of their overseas earnings.
Markets are waiting for the release of the German ZEW economic forecast for December at 5 a.m. EST to see how a rising euro is hurting economic sentiment.
The closely watched expectations indicator is forecast to fall to 10 from a previous reading of 13.9.
The Bank of Canada holds an interest rate meeting later and the Reserve Bank of Australia is also expected to make a decision on rates public. Both countries are expected to leave key rates unchanged.