Dollar hits all-time low against euro

The Dollar plunged to an all-time low against the euro yesterday as traders brushed aside unexpectedly strong US labour market data to focus on mounting concern over its record current account deficit.

The Dollar plunged to an all-time low against the euro yesterday as traders brushed aside unexpectedly strong US labour market data to focus on mounting concern over its record current account deficit.

The euro surged to $1.2968, passing the previous high of $1.2930 in February which triggered a chorus of calls from European finance ministers on central banks to intervene.

The currency was boosted after Gerhard Schröder, the German Chancellor, suggested he would tolerate a stronger euro. Traders said there was little to stop the dollar breaching $1.30 if other European leaders gave their tacit approval to further appreciation.

"The comments we've been getting from monetary officials within Europe suggest that they're not concerned," Ian Stannard, a currency strategist at BNP Paribas, said. "I think now we should be looking for a move through the $1.30 area."

The dollar had rallied earlier after official figures showed that the number of new US jobs soared by 337,000 last month, while job creation in August and September was revised up by a further 100,000.

David Bloom, a global economist at HSBC, said that showed the fall in the dollar was driven by concerns over the imbalances within the US economy. "If you ever needed a signal that was more bearish for the dollar, then this is it," he said. "If massive job creation cannot lift the dollar, then what have you got left?" He said the dollar would hit $1.35 by the end of the year. "If it turns into a rout and the Asian countries don't intervene then it gets quite precarious and could be the beginning of something quite serious."

Rob Carnell, a senior economist at ING Financial Markets, said the markets would be watching to see if Jean-Claude Trichet, who stemmed the euro's previous rise by calling it "brutal and unwelcome", would act again. "The question is whether verbal intervention will be enough or whether they will have to go the next stage of real intervention," he said. "If that doesn't work the ECB would have to think about rate cuts, which the markets have not thought about."

Think-tanks such as the International Monetary Fund have been warning for years that a decline in the dollar was necessary to prevent the US's "twin peaks" of a record current account and fiscal deficit from triggering a slump.

The US still attracts enough foreign capital a month to make up for the current account outflows, and many analysts expect some players, particularly Asian central banks, to remain active for a long time.

The surge in the euro will heighten the pressure on China to abandon its currency peg and let the yuan rise to take the pressure off the beleaguered Europeans. Last night the IMF, in its first public assessment of the Chinese economy, reiterated its call for greater exchange rate flexibility.