Dollar gains against euro on European debt worries

AP News
Posted: Mar 22, 2011 3:42 PM
Dollar gains against euro on European debt worries

The euro retreated against the U.S. dollar Tuesday on worries about Europe's most indebted countries.

But the dollar fell against the British pound and the Japanese yen in morning trading in New York.

The U.S. dollar is considered a safe haven asset by investors; with the belief that the nuclear crisis in Japan has eased and that central banks overseas will raise interest rates ahead of the Federal Reserve, investors are looking to other currencies.

Central banks raise interest rates to help counter inflation, and higher rates on government bonds tend to increase demand for the currency linked to that country or region.

The euro dropped to $1.4207 late Tuesday after rising as high as $1.4249 following a European agreement on how to pay for a bigger bailout fund. The euro was worth $1.4226 on Monday and has risen about 5 percent this year despite turmoil in the Middle East and North Africa and the crisis in Japan.

The European currency is near its November peak of $1.4282, which was its highest level since January 2010.

But the euro backed off Tuesday. Analysts say worries persist in currency markets about the ability of Portugal and Ireland to handle their debts.

Marc Chandler of Brown Brothers Harriman said the "problems in the periphery have not lessened."

Investors feared the collapse of Portugal's minority government after opposition parties withdrew support for another round of austerity policies. Portugal has cut government spending and increased taxes to cut down its debt, but those moves have not been popular with its citizens. Portugal is thought to be the euro country most at risk of needing emergency financial aid such as Ireland and Greece received last year.

In other trading Tuesday, the British pound rose to $1.6382 from $1.6315, while the dollar ticked lower to 80.91 Japanese yen from 81.05 yen and fell to 0.9032 Swiss franc from 0.9046 Swiss franc. The dollar edged up to 97.93 Canadian cents from 97.85 Canadian cents.