CURRENCY RATES Dollar's decline against euro and pound surprises analysts

Concern about the trade deficit is fueling the dollar's continuing decline.
NEW YORK (AP) -- The dollar fell to a new low against the euro and an 11-year low against the British pound Monday, as weeks of downward dollar sentiment persisted in thin holiday trading.
The euro rose briefly to $1.2511 in European trading, breaking a previous record of $1.2473 from last week, before slipping back under the $1.25 mark. In late New York trading, the euro was quoted at $1.2489, up from $1.2429 late Friday.
The British pound reached $1.7770, an 11-year high, before easing off later in the day to $1.7730 in late New York trading, down from $1.7702 late Friday. The previous high, reached Sept. 29, 1992, was $1.7895.
"The dollar's decline is just the continuation of an ongoing trend," said Michael Rosenberg, head of foreign exchange strategy at Deutsche Bank in New York.
Rise against yen
But the dollar showed a slight rise against the yen today in early trading in Tokyo. The dollar was trading at 107.06 yen, up 0.02 yen from late trading in Tokyo on Friday, and above 106.91 yen in New York later that day.
Even though there was not much news to distinguish Monday's session from earlier sessions, some analysts were surprised that the dollar did not show any bounce at the end of the year as they had expected.
"It suggests how endemically weak the dollar is," said David Gilmore, partner at Essex, Conn.-based Foreign Exchange Analytics.
The euro, introduced Jan. 1, 1999, has risen 19 percent against the dollar since the beginning of 2003, with the pace having stepped up sharply since the end of November.
While in recent weeks some had tagged the euro's breakthrough of the $1.25 mark a significant breach, traders played down the significance Monday, particularly in light holiday trading.
"Officials and markets are more concerned about the pace of the decline rather than the level of decline," Gilmore said. "The decline is still orderly and the dollar's current rate is sustainable."
Gilmore said the decline would be disorderly and would cause concern if the stock and bond markets were affected by it. "So far, that's not happened," he said.
Trade deficit
The dollar's slump has been fueled by concerns about the U.S. trade deficit and was magnified around Christmas and New Year's by thin holiday trading volume that exaggerates exchange-rate swings.
So far, officials on both sides of the Atlantic have indicated they are willing to let the market set currency rates.
And a weak dollar actually can aid the struggling U.S. economy by making U.S. goods more competitive on price.
"A lower dollar is useful in enabling U.S. companies to become more export competitive," said Robert Hormats, vice chairman, international, at Goldman Sachs in New York. "It helps to encourage other countries to take more domestic stimulative measures to offset the negative impact of the rise of their currencies."
Still, Gilmore said he expects monetary authorities to begin making verbal protests about the stability of the dollar at the G-7 meeting in February next year.
The euro's climb has led some economists and government officials in Europe to worry that the stronger currency will hurt a recovery expected to take hold next year as the stronger euro makes exporters' goods more expensive compared with those of foreign competitors.