Euro slides against dollar after new high

After hitting another all-time high against the U.S. dollar, the euro drifted lower in European trading on Wednesday.

Photo: Euro slides against dollar after new high

Euro slides against dollar after new high

The 13-country euro bought US$1.3778 in morning trading in Frankfurt, off of the record US$1.3852 it bought on Tuesday and lower than the US$1.3830 it bought in New York late Tuesday.

The euro has benefited from concerns about the fallout from problems with subprime mortgage loans in the United States and what effects it could have on the wider U.S. economy. While the weaker dollar makes U.S. exports more competitive, it hurts U.S. tourists in Europe.

The dollar has also been sliding against the British pound, reaching levels last seen in 1981 and making it more expensive for U.S. tourists to visit Britain. On Wednesday the pound bought US$2.0583, down slightly from the US$2.0639 it bought late Tuesday in New York.

Fears about the fallout from the subprime loan problem in the United States have piled on top of a narrowing interest rate gap between the U.S. and Europe to help push the dollar down.

The U.S. Federal Reserve is holding its main rate steady at 5.25 percent, while the European Central Bank has steadily raised its key rate to 4 percent, with more increases likely, a trend that supports the euro against the dollar.

Higher rates support a currency by offering investors higher returns, increasing demand for investments denominated in that currency.

The dollar also fell against the Japanese yen, dropping to 120.07 from 120.41 the night before.