Posted on: Tuesday, July 16, 2002

Dollar falls below euro in a sign of U.S. gloom

By Paul Blustein
The Washington Post

The dollar fell below the one-euro level yesterday, a fresh sign of the deepening pessimism in U.S. financial markets and the growing disillusionment among investors worldwide over the scandals besetting American companies.

The one-to-one "parity" between the dollar and the currency of the 12-nation euro zone — which late yesterday was at about $1.0037 per euro — marks an important milestone in the selloff that has sent the greenback tumbling from its once-mighty perch along with U.S. stock prices.

The last time the euro was worth $1 was more than two years ago; as recently as March 1, it was worth about 86 cents.

The dollar's decline benefits the U.S. economy in significant ways, especially by making American products cheaper than overseas goods. But although many economists agree that a smooth descent for the greenback is desirable, yesterday's drop underscored the risk that foreigners might be panicked into dumping their massive holdings of U.S. stocks and bonds, seriously damaging the economy in the process.

"What happened today, and it's been happening for the last several weeks, is that foreign investors have lost confidence in corporate America, and because they've lost confidence they're buying fewer U.S. assets — stocks, bonds and the currency," said Rebecca Patterson, a currency strategist at J.P. Morgan Chase in New York.

"As long as it happens in a controlled way, the weaker dollar will be stimulative for the economy, because it helps exporters," Patterson added, but the worrisome scenario, she said, is that foreign investors, fearing a further sharp erosion in the greenback, might unload their U.S. investments on a much more rapid and disorderly scale to avoid suffering losses on their holdings — thereby precipitating a similar move among U.S. investors.

Against the Japanese yen, the dollar has fallen about 13.6 percent since March, trading yesterday at 116 yen.