Euro strikes new record high against dollar

LONDON (AFP) - The European single currency soared to a new record high against the dollar yesterday as the US currency continued to be undermined by housing market worries.

The euro rose to a record 1.3843 dollars in late European trade, from 1.3802 in New York late on Thursday. It later stood at 1.3835.

The dollar also hit a six-week low against the yen of 120.85. It later stood at 121.19 yen, from 121.99 yen on Thursday.

"It has been one-way traffic against the dollar in recent minutes and the euro/dollar has rallied up a fresh all-time high," said currency analyst Matthew Foster-Smith at Thomson IFR Markets.

Worries about problems in the US sub-prime mortgage sector -- loans to homeowners with patchy credit histories -- caused sharp falls on global equity markets on Friday as investors reduced their exposure to risk.

Investors are concerned that the housing market problems could spread to the rest of the US economy after Federal Reserve chairman Ben Bernanke warned this weekend of an impact on growth.

BNP Paribas currency analyst Ian Stannard said sharp losses in the dollar against the yen were because of an unravelling of the carry trade, which was caused by risk aversion among traders.

The carry trade is a risky but popular practice of borrowing money in countries with low interest rates such as Japan and investing in countries with high interest rates such as Australia or Britain.

Stannard also noted that the yen had been "catching up" with gains in other Asian currencies after an announcement by the People's Bank of China of a 27 basis point rise in interest rates.

"The yen may be catching up a bit. But overall the dominant factor driving currency markets is a dollar weakness story," he said.

In addition to worries about the housing market and the outlook for the US economy, the dollar has also been hampered by prospects of higher interest rates in Europe and elsewhere.

While the European Central Bank appears set to lift eurozone borrowing costs in September from the current level of 4.00 percent, the US Federal Reserve has frozen American rates at 5.25 percent for the past year.

Yesterday, meanwhile, both the Australian and New Zealand dollars hit new multi-year high points against the US dollar.

The Australian dollar struck an 18-year high point of 0.8833 dollars, and the New Zealand dollar struck a 25-year peak of 79.57 cents, as dealers bet on rising interest rates in New Zealand next week.

Later, losses against the yen caused the Australian dollar to come off earlier 18-year highs but it remained above the 0.88 US dollar level.

The euro was changing hands at 1.3835 dollars, against 1.3802 dollars late on Thursday, 167.61 yen (168.41), 0.6727 pounds (0.6736) and 1.6598 Swiss francs (1.6608).

The dollar stood at 121.19 yen (121.99) and 1.2000 Swiss francs (1.2031).

The pound was being traded at 2.0566 dollars (2.0486).

On the London Bullion Market, the price of gold climbed to 681.60 dollars per ounce from 674.50 dollars late on Thursday.