Euro over U.S. Dollar

The dollar sank to an all-time low against the euro Wednesday with U.S. inflation coming in three times as high as expected in March, on top of escalating food and energy prices.

The euro has climbed to record highs against the U.S. dollar after worse than expected inflation data.

Inflation also rose overseas and the euro reached $1.5966 after the EU's statistical agency Eurostat said that annual inflation rose on higher prices for transport fuel, heating, dairy products and bread. It was the quickest rise in 16 years.

The euro surpassed its previous record of $1.5912 set on April 10. It then fell back slightly to $1.5948, still well above the $1.5790 it bought in New York late Tuesday.

The euro rose because inflation overseas will likely muffle calls for the European Central Bank to lower its interest rate from four percent. The bank's primary mission is to combat inflation.

Lower interest rates can weigh on a nation's currency as traders transfer funds to countries where they can earn better returns, while higher rates are used to curb inflation.

The British pound, which slipped Tuesday on a series of dour economic reports, climbed to $1.9762 from $1.9619.

The dollar slipped to 100.84 Japanese yen from 102.04 yen following reports in the media that Merrill Lynch & Co. will announce $6 billion to $8 billion in new write-downs Thursday. The Wall Street Journal said Merrill's expected write-downs would bring the total since October to more than $30 billion and would mean the company's third straight quarterly net loss.

On Tuesday, the U.S. Labor Department reported that wholesale prices rose by 1.1 percent last month, while analysts had been expecting 0.4 percent.

The Federal Reserve has been cutting interest rates in an effort to combat the economic slowdown. If inflation keeps increasing, the Fed might be forced to stop cutting interest rates for fear that it would make inflation worse, but the slowing U.S. economy could ease those pressures.

The U.S. economy will tip into a mild recession in 2008

The world economy will slow sharply this year, according to an International Monetary Fund forecast, with the United States sliding into a recession amid housing, credit and financial slumps.

The IMF, in a World Economic Outlook released Wednesday, slashed growth projections for the United States — the epicenter of the woes — and the global economy as a whole.

Economic growth in the United States is expected to slow to a crawl of just 0.5% this year. The United States won't fare much better next year; the IMF projected the U.S. economy will grow by a feeble 0.6% in 2009.

"The U.S. economy will tip into a mild recession in 2008 as the result of mutually reinforcing cycles in the housing and financial markets," the IMF said.

Many private economists and members of the U.S. public believe the country has already fallen into its first recession since 2001. For the first time, Federal Reserve Chairman Ben Bernanke acknowledged last week that a recession was possible.

An increasing number of analysts think the U.S. economy, which grew 2.2% in 2007, started shrinking in the first three months of this year and is still contracting. Under one rough rule, if the economy contracts for six months it is considered to be in a recession. A panel of experts at the National Bureau of Economic Research that determines when U.S. recessions begin and end, however, uses a broader definition, taking into account income, employment and other barometers.

To limit the damage, the Federal Reserve has been slashing interest rates since last September and has taken a number of extraordinary measures to avert a financial meltdown, which would have dire consequences for the U.S. economy.

"The financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression," the IMF declared.

Problems started in the United States with risky "subprime" mortgages made to people with blemished credit and quickly spread into other areas, hitting more creditworthy borrowers. Foreclosures in the USA hit record highs and financial companies racked up multibillion-dollar losses as mortgage-backed investments soured with the collapse of the U.S. housing market.

The fallout gripped investors on Wall Street and in other countries, creating a panicky atmosphere that threatened to paralyze financial markets in the United States and beyond.

Against that backdrop, the IMF expects the world economy, which grew a hardy 4.9% last year, to lose considerable momentum. The fund is projecting the global economy to grow 3.7% this year and 3.8% next year.

"The global expansion is losing speed in the face of a major financial crisis," the IMF said.

There's a risk that things could turn worse, it cautioned.

"The IMF now sees a 25% chance that global growth will drop to 3% or less in 2008 and 2009 — equivalent to a global recession," the fund said. "The greatest risk comes from the still-unfolding events in financial markets, particularly the potential for deep losses" on complex investments linked to the U.S. subprime mortgage market, the IMF said.

Looking at other countries, the IMF trimmed its projection for Germany, with economic growth slowing to 1.4% this year and 1% in 2009. In Britain, growth will slow to 1.6% this year and next. France also will see growth decelerate to 1.4% this year and 1.2% next year.

Japan's economy will expand 1.4% this year and 1.5% next year. Canada's growth will slow to 1.3% this year and pick up slightly to 1.9% next year.

Global powerhouse China, which barreled ahead at an 11.4% pace last year, will see growth moderate to 9.3% this year and then strengthen a bit to 9.5% next year. India, which grew a blistering 9.2% last year, is expected to grow 7.9% this year and 8% next year. Russia, which logged growth of 8.1% last year, will see growth moderate to 6.8% this year and then 6.3% next year.

While the IMF is worried about the dangers of weakening global economic growth, it also expressed concern about the potential for inflation to heat up around the world, given sharp increases in energy and other commodity prices. "Risks related to inflationary pressures have risen," the fund said.