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. Last Updated: 07/27/2016

Dollar Slides to New Euro Low

LONDON -- The dollar hit a fresh record low against the euro and a nine-year low on a trade-weighted index on Monday as investors continued to shun the greenback on worries over the United States' bloated deficits.

The dollar weakened as far as $1.2985 to the euro in early trading and analysts said it was only a matter of time before it reached the psychologically significant $1.30 level.

"The United States has a current account deficit, a budget deficit and a president who appears unconcerned about dollar weakness," said Shahab Jalinoos, senior currency strategist at ABN AMRO. "No one can see any reason to buy the dollar at the moment."

The latest bout of dollar weakness began last Wednesday as investors took the view that the administration of re-elected President George W. Bush would do little to alleviate the twin U.S. deficits.

The budget deficit is about $427 billion, or 3.7 percent of gross domestic product, while the current account, the broadest measure of trade, hit a record $166.18 billion shortfall in the second quarter.

The dollar's weakness was broad-based, with the U.S. currency hitting a nine-year low against a basket of currencies below 83.80, a 12-year low against the Canadian dollar and multi-month lows against sterling and the yen.

By 2 p.m. Moscow time, the dollar was trading at $1.2960 to the euro and 105.46 yen, just above session lows.

European Central Bank president Jean-Claude Trichet is expected to hold a news conference later, and the market is keen to hear whether he voices concern over recent currency moves.

Top central bankers meeting in Basel said on Sunday they were keeping a wary eye on currencies, but analysts said Japanese and euro zone policymakers were unlikely to step into the market to stop the dollar's fall at this stage.

"The euro/dollar's break of $1.30 is only a matter of time," said Naomi Fink, senior currency strategist at BNP Paribas. "It's just a question of momentum."

Japan intervened heavily on the foreign exchanges, selling about 35 trillion yen ($332.2 billion) in 2003 through to March this year. But analysts say Tokyo is unlikely to repeat such a large-scale campaign given that the Japanese economy is now in better shape.

Eurozone policymakers have also sounded fairly relaxed about recent exchange rate moves, noting a weaker U.S. dollar helps to combat inflation and cushion the impact of high oil prices.

ECB chief economist Otmar Issing declined on Monday to comment on the euro's exchange rate, while Germany's DIHK chambers of trade and industry said the euro would not threaten Germany's 2005 growth prospects unless it rose above $1.30 for a "lasting" period.

The dollar's best chance of a rebound in the near term is after the U.S. Federal Reserve's policy meeting on Wednesday, traders said.

The market has already priced in a quarter-point U.S. rate rise this month but is less certain about a hike in December.

If the ECB indicates it will raise rates again next month, that could help the dollar, as higher rates are likely to draw more foreign capital into the United States.