BERLIN - The U.S. dollar reached a new all-time low Friday against the euro, which hit $1.3548 in extremely light holiday trading with most European foreign exchange markets closed.
Analysts expect the euro to end the year at about the $1.35 level - which the euro broke for the first time Thursday - but with activity so thin, small trades can send the currencies careening because there aren't enough other trades to offset the effect.
The dollar was quoted at $1.3536 per euro in afternoon trading in New York.
The 12-nation euro initially fell against the dollar after its 1999 debut, but it has risen more than 60 percent since bottoming out at 82 U.S. cents in October 2000.
It has risen particularly sharply since September, when it traded for around $1.20, over persistent concerns about the U.S. trade and budget deficits. With no solution to those problems in sight, analysts expect the course to continue and some have predicted a euro level of $1.40 or higher by the end of 2005.
Though Washington professes a "strong dollar" policy, most analysts believe the U.S. is content to let the dollar fall because it has been making American exports cheaper.
However, Europe's fragile economic recovery is export-driven, and the strong euro has either been making European goods more expensive overseas or cutting into producers' profits as they try to hold prices steady.
At the same time, though, it has helped mitigate high oil prices for Europeans because oil is priced in dollars.
European Central Bank President Jean-Claude Trichet has called the rapid increase in the euro's strength both "unwelcome" and "brutal" but has made no indication he will intervene in currency markets to halt the dollar's slide.
The majority of European markets were closed Friday, Christmas Eve, with most trading occurring in London, which was open for a half-day.
The pound was trading at $1.9222, while the U.S. dollar bought 103.63 yen.
The dollar rallied slightly last Friday on better-than-expected economic news and after President Bush vowed to take on the budget deficit by proposing to keep spending on non-defense and non-homeland security items virtually static in fiscal 2006.
It slumped again to a record low against the euro this week, however, after mixed economic news out of Washington from the Commerce Department.