Lower Growth Outlook Hits Euro

The euro hit another all-time high in overnight trading Friday, but quickly gave up all the gains on news that Europe's economy will grow less than previously expected.

One euro would buy $1.4682, down from a record high of $1.475 reached before New York trading began. Late Thursday, the euro was trading at $1.4680.

The European Commission lowered its economic growth forecast for the 13 euro-using countries to 2.2% for 2008, down from 2.5%.

Speculators who had previously sold short the low-yielding yen and had invested the proceeds in the euro, where interest rates are higher, were unwinding their positions in the wake of broader market volatility, explains Marco Spaltro, currency economist at IDEAglobal in London.

The result was relative strength in the yen and weakness in the euro. Over the medium and long term, differentials in paces of economic growth and interest rates tend to drive the values of currencies, Spaltro says.

In other dollar-positive news, the Commerce Department reported a lower-than-expected trade deficit as exports surged because of the low value of the U.S. currency.

Elsewhere in the foreign exchange market, the British pound was slipping. One pound was selling for $2.097, down from $2.1104 a day earlier. The dollar was trading for 110.64 Japanese yen, down from 112.69 yen previously.