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Dollar dives in world market

It falls to parity with the Canadian dollar and a record low against the euro.

NEW YORK - The world dumped on the dollar on Thursday, pushing it to parity with the Canadian dollar for the first time in three decades and an all-time low of $1.40 against the euro.

That means Americans will pay more for imports and trips to Paris, Rome and Toronto.

And Canadians can exchange 1-for-1 with U.S. money for the first time for the first time since 1976.

It also may drive overseas demand for U.S. goods and help raise profits at U.S. multinational corporations.

The decline came as currency traders around the world digested the Federal Reserve's new course for interest rates.

"It's pretty ugly right now for the dollar," said Jim McCormick, a London-based strategist for Lehman Brothers International. "But the markets are having a very rational response to what the Fed did on Tuesday."

The numbers do not mean that the dollar is facing a meltdown, however.

The dollar's drop is of greater concern to currency markets than U.S. households, except "if you're a connoisseur of French wines or Canadian maple syrup," said David Gilmore, a foreign exchange analyst in Essex, Conn.

A lower dollar makes U.S. exports more competitive, which is good news for American manufacturers but spells rising prices for imports to the U.S. And while the dollar's decline diminishes the spending power of American tourists, it attracts to the U.S. foreign visitors who seek cheaper accommodations and shopping.

The euro, Europe's unified currency, was established in 1999.

Currency analysts are dodging the label "dollar crisis" for the moment, preferring to see Thursday's events as the logical outcome of the Fed's decision to lower its benchmark rate by a half percentage point, to 4.75 percent - a step intended to quarantine the wider economy from the effects of a housing market collapse and soothe credit markets.

But Thursday's events left little doubt that attitudes toward the dollar are evolving faster than most analysts had expected.

"What is changing here is that people have been living with this notion that the dollar might get weaker briefly and then recover," said Thomas Stolper, a strategist with Goldman Sachs in New York. "But that view is evolving."

The Federal Reserve chairman, Ben Bernanke, acknowledged the gravity of the crisis Thursday before a House committee, while rationalizing the rate cut as a balancing act between combating inflation and promoting growth.

President Bush also chimed in with soothing words, even as the world heatedly debates whether a U.S. recession is ahead. "The fundamentals of our nation's economy are strong," he said at a news conference. "There is no question that there is some unsettling times in the housing market."

Information from the New York Times and Associated Press was used in this report.

[Last modified September 20, 2007, 23:56:23]