Euro hits record high

The euro rose to a record high against the dollar on Wednesday as expectations for the Federal Reserve to start cutting interest rates next week continued to erode the US currency's appeal.
The yen initially slipped on Wednesday on news Japanese Prime Minister Shinzo Abe would resign, but regained ground as the euro hit the record high against the dollar. With investors still worried about turmoil in credit and money markets stemming from problems in the US subprime mortgage sector, Abe's resignation alone was not likely to play a crucial role in shifting market focus to the yen, traders said.
"A currency is sold when there is political uncertainty, so it was natural that the yen was sold," said Tomohiro Iwata, chief forex dealer at Goldman Sachs, adding that more details were needed to determine the yen's direction.
"Basically, the market's main focus remains on US economic fundamentals, with players closely watching whether the Federal Reserve would cut interest rates by 25 or 50 basis points next week, and a statement that follows," he said. The dollar's trade-weighted index against six major currencies fell to a fresh 15-year low and stood at 79.459. The euro rose as high as $1.3880 on electronic trading platform EBS, the highest since the launch of the single European currency in 1999.
The dollar rose to around 114.30 yen from around 114.10 yen on the news of Abe's resignation, but was trading down 0.3 percent at 113.90 yen. The euro rose to around 158.20 yen from around 157.90 yen before the news, and was later trading nearly unchanged at 158.00 yen.
The dollar remained pressured on expectations the Fed would cut interest rates at its September 18 meeting to counter the US growth slowdown after last week's data showed US payrolls shrank for the first time in four years in August.
"With the market's attention turning to the US economy, European currencies, and especially the euro, are attracting buying," said Akira Kato, senior manager for the Bank of Tokyo-Mitsubishi UFJ's foreign exchange trading department.
Lending support to the euro were remarks by European Central Bank President Jean-Claude Trichet, who said on Tuesday that the ECB's monetary policy remained accommodative.
Abe told a news conference that he would resign in the hope of making it easier to extend a naval mission in support of US-led operations in Afghanistan. Abe, who took office just one year ago promising to boost Japan's global security profile and pursue economic reforms and growth, has suffered low support rates and dwindling clout after his ruling camp suffered an election drubbing.
Traders said while the market's predominant focus was on the health of the US economy and risk-aversion, which doesn't favour a resumption of carry trades, Japan's political uncertainty could help high-yielding currencies gain some ground.
"Abe's resignation coming just as the yen was retreating, mostly on the unwinding of short-term positions, could spur buying in high yielding currencies as well as the dollar," said the Japanese bank dealer. The Australian dollar was down 0.15 percent against the yen while the New Zealand dollar shed 0.3 percent.