The dollar may extend a two-year decline against the euro on speculation a slowing economy will make US assets less attractive to investors.
The US currency fell against 14 of the 16 most-actively traded currencies in 2007 as the Federal Reserve reduced borrowing costs three times to temper the worst housing slump since 1991.
The US unemployment rate probably increased last month to the highest since July 2006, according to the median forecast in a Bloomberg News survey before the US government reports the data on January 4th.
"The US economy will be pushed close to the recession level," said Greg Salvaggio, vice-president of capital markets at currency-trading company Tempus Consulting in Washington. "There will be further dollar weakness in early 2008."
The dollar lost 9.5 per cent against the euro in 2007, dropping to $1.4588, following a 10.2 per cent drop in 2006. It increased 0.9 per cent on Monday after a report from the National Association of Realtors showed purchases of existing homes unexpectedly rose in November.
Yesterday, Cyprus and Malta became the latest economies to embrace the euro, increasing membership of the common currency to 15 and giving the two island nations a say in shaping European Central Bank (ECB) policy.
Hundreds of people in the capital cities of Nicosia and Valletta celebrated with fireworks and music as the Cypriot pound and Maltese lira followed the French franc and German mark into the history books.
The Mediterranean islands reduced budget deficits and borrowing costs to prepare for the euro, attracting international investment and tourism that has spurred economic growth.
Entry will also earn the countries seats on the ECB's governing council, which sets interest rates.
"Both Cyprus and Malta are small, open and thriving economies for whom having a stable and widely used currency will provide a major advantage," said Holger Schmieding, chief European economist at Bank of America in London.
The European Commission said in a statement yesterday that data from banks and shops indicated the changeover to the euro passed smoothly in both countries. Cyprus and Malta are respectively the wealthiest and smallest of the 10 mostly eastern European nations that joined the European Union four years ago. They become the first to adopt the euro since Slovenia a year ago.
The currency yesterday celebrates its ninth birthday, driving an economy with a gross domestic product of €8.8 trillion, €2 trillion more than at its inception and 440 times the combined economies of Cyprus and Malta.
(Bloomberg)
